Automakers are growing concerned about the future now that it looks like people have finally reached their breaking point in regard to elevated vehicle pricing. While the industry is citing inflation in the general sense, the truth of the matter is that companies’ own inability to manufacture vehicles and parts at anything approaching a normal pace resulted in price increases that vastly outpaced the devaluation of your preferred currency. This was made far worse by dealerships affixing their own markups to just about every model that compares favorably to walking.
While the industry has treated the last couple of years as a time of crisis, the reality is that most of the big companies have actually become more profitable in the wake of the pandemic response that helped create our present economic situation. But that hasn’t kept the industry from complaining, sending lobbyists to Washington D.C. to argue for better terms in regard to the revised EV tax credit scheme, or bemoaning consumers that are quite literally becoming too poor to purchase a new automobile. And this is all happening as some of the biggest brands are plotting (or in the midst of) widespread layoffs deemed necessary for the transition to all-electric vehicles.
At this point, it’s not much of a secret that EVs require less manpower to manufacture. Battery production is largely outsourced to foreign suppliers, leaving vehicle manufacturers with a unique opportunity to streamline their workforce as they broaden their per-vehicle margins. However, according to Reuters, industry players are also getting a little worried that mainstream brands won’t receive sufficient attention in the coming years. Carmakers are starting to report shrinking demand in Europe and North America, citing analysts that now believe consumers have begun to prioritize the essentials — which have also gone up in price dramatically since 2020.
The good news is that the hellacious waiting times seen on new vehicles are starting to come down. But production has remained stifled, whether that’s due to ongoing supply-chain issues or individual automakers simply thinking they can perform better running extra lean. Ideally, they’d like to continue passing on rising costs to customers while producing the bare minimum. It’s just not entirely realistic when consumers are already at their breaking point and central banking institutions remain convinced that inflation will continue to be an issue for the rest of 2022 and perhaps longer.
“The weight of buying a car on the household budget is something we will come up against,” Stellantis chief executive Carlos Tavares said last month. “There is a limit to price hikes.”
Some U.S. automakers have even begun considering bringing back discounts and incentives which were scrapped during the pandemic as supply constraints became a major issue.
Meanwhile, data from online car dealerships and auction platforms showed a slowdown in demand since March this year, Philip Nothard, insights director for Cox Automotive’s European division, explained.
“Consumers are currently very cautious,” he said.
A recent survey by the German Ifo Institute showed German carmakers’ order backlogs are shrinking and price expectations pitching downward due to concerns about ongoing gas shortages and continued weakness in the Chinese economy where their vehicles are particularly popular.
Considering just how much the wealth gap has widened over the last few years, it seems as though most mainstream carmakers would benefit from producing more economy-focused vehicles that cater to cash-strapped consumers. However, those haven’t been super profitable in the past and the industry seems wholly preoccupied with focusing on the transition to EVs, seemingly oblivious to the fact that most of the upcoming electric models will sticker well above the average transaction rate of internal combustion vehicles.
Thus far, the solution has been to ask the government to make taxpayers shoulder the burden. In the United States, automakers have made a run on Congress to ask Democrats to sweeten their proposed spending bill even further. Despite a surprise deal being reached among the party that could result in a dramatic expansion of the existing $7,500 EV tax credit, manufacturers are still upset about content restrictions and pricing caps.
Industry lobbyists and politicians with deep ties to the automotive sector have started criticizing inclusions that would render EVs made with any battery components manufactured by China and other “foreign entities of concern” ineligible to receive the credit after 2023.
“Unfortunately, after they are implemented, at this point it looks like companies won’t be able to use them in the short run,” Sen. Debbie Stabenow (D-MI) told Bloomberg in an interview.
Numerous American companies (e.g. Ford, GM, Stellantis) and even a few Asian brands (e.g. Toyota) have been pressuring Congress for more time to comply. However, those against the “Inflation Reduction Act of 2022” (formerly Build Back Better) have repeatedly stated that they’re concerned that it would effectively subsidize the continued production of Chinese-made batteries and further exacerbate regional inflation.
Other automakers are lobbying to extend the transition time before new limits on vehicle pricing and consumer income come into play. The Senate spending scheme would cap the credit to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers for new vehicles. It also includes a cap on the suggested retail price of eligible vehicles of $55,000 for new cars and $80,000 for pickups and SUVs. While this doesn’t exactly limit credits to low-income households, it does mean there are plenty of incoming models that won’t be eligible. Some companies, like Rivian, would prefer to retain the old quota-based system that allowed all automakers to benefit from the credit until they’ve sold 200,000 EVs. Rivian hasn’t even delivered 10,000 cars yet and has a long way to go before it reaches the cap. But, if the updated proposals are passed, it and a few other brands would be required to adhere to protocols that would place them at a sudden disadvantage.
“If the legislation is passed as drafted it pulls the rug out — it cuts Rivian out entirely,” said James Chen, vice president of public policy for Rivian. “Congress is throwing up a big stop sign to American-made electric trucks and SUVs.”
Companies that have exhausted their EV quota already, like General Motors, obviously feel quite differently. Though Tesla, which hit its production cap before anyone and also seems to benefit under the revised plan more than most, has been pretty adamant that it wants the old system to run its course.
Keep in mind that this entire scheme originated over a decade ago as a temporary way to assist automakers that were going out on a limb to manufacture all-electric vehicles in a way that didn’t favor anybody. Now, it seems to be developing into an endless bureaucratic nightmare with the industry pressuring the government for more as the penalties for not building EVs stiffens the world over. I’d even be sympathetic to their presumed plight if the involved companies actually seemed worse for the wear. But car companies don’t appear to be suffering all that badly at present and have remained laser-focused on never-ending growth. Revenues have been improving, investments continue to rise, and there’s a giant pile of money waiting beneath them if they fall and plenty more being set aside even if they don’t.
[Image: Andrea Izzotti/Shutterstock]
Become a TTAC insider. Get the latest news, features, TTAC takes, and everything else that gets to the truth about cars first by subscribing to our newsletter.