What makes U.S. auto factories less efficient?

Factories worldwide are not producing enough cars to be profitable, with several factors contributing to the decline in productivity.

Despite the pandemic, new car demand in the U.S. has not fully recovered to pre-pandemic levels. In 2016, 17.5 million cars were sold, but this number decreased to 17 million by 2019. During the pandemic, sales plummeted to a 2022 low of 13.8 million. Although sales have partially recovered, they are expected to be just shy of 16 million units in 2024.

GlobalData's Global Vice President of Automotive Research Jeff Schuster stated that high prices are driving customers away or towards used markets.

He stated that although cost pressure may decrease, it is unlikely that demand will return to its previous level.

The second factor is the transition to electric vehicles.

"According to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, the market for electric vehicles was predicted to flourish in the 2020s, but it has not yet reached the expected level. Despite having numerous plants prepared to manufacture 200,000 or 300,000 electric vehicles, there is a lack of demand. As a result, the industry is waiting for the market to materialize."

Car manufacturers are confronted with a new challenge: creating vehicles, logistics, and production facilities that can handle various power sources.

For over a century, almost all vehicles relied on gasoline as their primary fuel source. However, automakers have been striving to shift to a battery-powered future where cars run solely on electricity. Despite their hopes, the transition to electrification has proven to be far more complicated than anticipated.

"Michael Robinet, executive director, automotive consulting, at S&P Global Mobility, stated that he has been in the industry for over 35 years and has never experienced a period like the current one, with numerous possibilities that could significantly alter the industry's trajectory."

Watch the video to learn more.