Aug 10, 2022

The Auto Bubble, Supply Chains … and NFTs?

How can blockchain technology and NFTs create a transparent environment in an imploding automobile market?

One of the most significant purchases an adult will make in their lifetime is purchasing real estate or financing a new or used car. In contrast to the housing market, the automotive industry is one of the least regulated in the world. With the automobile industry being comprised of only a handful of firms, these companies dominate the entire global market and the supply chain.

In the advent of COVID-19, a domino effect has led to a series of events causing a spike in inflation, disruptions in supply and demand, and a global computer chip/semiconductor shortage. The latter had a great impact on new car production and the automobile industry in general. These semiconductor chips power the electronic components inside new car models. U.S Congress recently passed “The Chips and Science Bill” which will pour $280 billion into subsidizing chip manufacturing technology on a domestic scale. The premise of this bill should aid in easing the after-effects of the car market bubble.

Only 14 car companies dominate the automotive industry

These macro events, however, have filtered down to the average consumer. Known for having a lax code of ethics, purchasing a vehicle from one of the most unregulated markets is fraught with uncertainty and mistrust in car dealerships. Since laws prohibit consumers from purchasing a vehicle directly from a car manufacturer, they must prepare to be at the mercy of the dealership’s prices and hidden fees. On top of buyers’ anxiety, the grand size of the purchase, and hours of waiting while finance crunches numbers and buries you in paper contracts, you are usually anxious to leave the dealership, when you should be ecstatic about your new car.

Following the pandemic, individuals looking to buy new cars were often dissatisfied because they had to pay $15,000 more than the MSRP. Due to the scarce inventory, sellers had a golden opportunity to trade in used cars for 40–50% over-value due to the supply chain bottlenecks. Consumers were paying higher premiums for assets that were already depreciating. To add more fuel to the fire, due to an increase in government aid in 2020–2021, consumers could secure higher financing options for their vehicle purchases because of a bump in their annual income (due to unemployment relief and stimulus packages). Due to higher financing rates, prime and subprime borrowers alike are defaulting on their auto payments at alarming rates. Now in 2022, there are record numbers of car repossessions, which is one of the first signals of a recession.

How could blockchain technology and NFTs possibly offer a solution to the numerous nuances in this market? For starters, blockchain technology could add more transparency and traceability in the automotive supply chain.

Automotive supply chains are among the most complex, with millions of inputs tracked from manufacturing to sales, repairs, and resale. Unfortunately, many of today’s systems lack the transparency required to trace each of these components effectively. Supply bottlenecks occur as a result of inefficient ordering, disrupting revenue streams and inconveniencing potential customers. Through an immutable, irreversible, time-stamped ledger, the blockchain could streamline this process and provide transparency. From production to resale to recall, every input would be verified, authenticated, tracked, and traced. Utilizing blockchain technology for supply chain management can improve business performance and can provide a variety of benefits, including improved customer satisfaction and streamlined flow of goods and services.

In terms of daily operations at a dealership, NFTs may have industry utility. Despite being overlooked and generally accepted without much opposition, registering a car to its new owner is an unnecessary burden. NFTs provide proof of ownership certification, which can also be used in the automobile industry. Endless paperwork, which is more vulnerable to loss and fraud, may become obsolete if NFTs are used to transfer ownership securely. By utilizing “on-chain” titles, NFTs can streamline the vehicle registration process. Car dealers frequently attend auctions to bid on repossessed vehicles. Dealers must usually wait for titles from banks or previous owners when purchasing a used vehicle at auction.

Transferring ownership of used vehicles is usually a hassle, and leaves potential buyers flooded with paperwork. NFTs have the potential to simplify this process for dealerships and government entities, such as the DMV. Dealers and consumers can both benefit from using the blockchain to create a distributed ledger that verifies and authenticates vehicle ownership — which in turn, streamlines the car buying process.

We are still in the early stages of the evolution of NFTs and blockchains. NFTs are a diverse asset that has yet to reach its full potential. What is stopping you from developing your own NFT project with progressive utility? Is it a lack of artistic confidence, a struggle with technology, or simply a lack of direction? Chain’s NFT-as-a-Service is here to assist, specializing in the creation of digital and physical collectibles through an end-to-end service. Regardless of where you are in the process of developing your NFT collection, Chain’s NFT-as-a-Service has a team of experts to help you every step of the way.

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The information provided in this article does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website’s content as such. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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