How did VW Europe end up with so much inventory?
– Is it really that bad?
– What were the Supply Chain Pundits in this and that Tech with 300-page resumes doing?
For a start they were hoping the demand at least returns to pre-covid19 levels ~16 million cars but the sales declined. Not their fault. VW did what any manufacturer would.
Why Decline in Sales?
Dozen reasons depending on who you ask. Everyone is a pundit on everything these days. But for sure that fake virus scam did disrupt some supplies and hence ‘backlog’ of demand post. So, they were optimistic that they can sell. So they made. But they couldn’t sell. And then EV cars happened. They had plants to run and people to pay.
Why so much Inventory?
Its not so much. Mostly its normal when you are trying to catch up with shortages. Pent up Demand. VW has 25% of market share. At ~16 million cars annual demand, the inventories weren’t high.
Other reason that ‘they’ (the consultants) possibly didn’t factor in is cars are lasting longer now. Way more durable vis-a-vis 30 years ago. Average age of VW cars in Europe is 10 years and its increasing. Nice roads. Nice drivers. But they didn’t probably get the idea of replacement demand. 10 years is a good amount of time. People age too and their preferences can change from a VW to a Toyota in this period.
Is it a demand forecasting problem? forecasters problem?
May be. Automobile demand forecasting can’t be done with some standard software models alone. It needs research. Deep research into demographic shifts, Interest rates, inflation, disposable income growth, fuel prices, shift in preferences, aftermarket, demand for used cars, tariffs, bilateral trade (Toyota loves Australia and NZ) and a host of other factors. That needs 10 to 15 years planning horizon. But that’s too much planning and then tech is evolving fast.
So, what’s the solution?
Auto companies should provide personal transport solutions. That should be their existential goal. Not stick to just one technology. Keep a mix. Gauge future. That isn’t hard. Eventually they will all fly drones to work. Just big enough to fit one guy. Powered by Sun. No parking needed. They can just hang in over there and you call it when you need to fly home. But first stand in a queue please. We have limited space! (that limited space will be because of some evil civil servant)
PS: Protectionism in Auto Industry isn’t all that bad an idea! State too has an obligation to protect the investments in an Industry that funds welfare. Here comes political leadership – “If you allow us to import our cars at 0% tariffs, we will loan you 100bn Euros at 3% annual interest and that too in your currency. Risk is ours.” Can Europe say thus? Fair deal?
