The Russia-Ukraine conflict has, expectedly, worsened the existing logistical and supply chain issue that has already been plaguing the global automotive industry. Reports from all quarters are pointing at a potential hit in production numbers, particularly for the Europe region. According to S&P Global Mobility, an automotive research firm, the conflict has caused parts shortages of critical vehicle components.
At the beginning of the month, The New York Times reported that shortages of auto parts made in Ukraine had brought European automotive assembly lines, including those of BMW, the Volkswagen Group, to a grinding halt.
According to an NYT article, Ukraine serves as a key hub for manufacturing systems connecting electronic components like tail lights or entertainment systems in cars, with hand-assembled components which require a large number of skilled workers. The article went on to state that the reason Ukraine is a strong hub is because of its relatively cheap but skilled labour force and the country’s proximity to European car factories. The absence of such wiring systems, indeed any component connected to the car’s electrical functions, can stop assembly lines from functioning for a while.
While BMW has stated that it will resume full production next week, its production numbers are expected to be on par with those in 2021, despite early projections showing that the brand expected to surpass those numbers in 2022, having . Production of Mini in Oxford, however, remains suspended and BMW has stated that further disruptions are to be expected as the Ukraine crisis continues. Volkswagen has said that it will ramp up production in its home turf at Wolfsburg, while its EV plants will stay shut until April. Porsche has also halted production at its factory in Leipzig, where it builds the Panamera sports sedan and the Madan SUV.
The problem adds to an existing supply chain issue brought about by the prevailing semiconductor shortage. Some of the key components of semiconductors are sourced from both countries. While Russia isn’t a key market for most of these brands, accounting for only 2 percent of German carmaker sales, the lost demand from both Russia and Ukraine accounts for 1 million units for European automakers such as Renault, Skoda, etc. The effects on the supply chain are felt globally with S&P predicting a cut in North America for light-duty vehicle production by about 480,000 units.
In total, the global light vehicle production forecast has been cut down by 2.6 million units, according to S&P
Europe isn’t the only region affected by the strain in the supply chain. Toyota Motor Corp, Japan’s largest automaker has stated that it will scale down domestic production by up to 20 percent due to shortage of chips and other parts.
In India also, the demand for passenger cars could see an impact due to supply shortage, commodity price hike which will push automakers to increase prices, and a likely fuel price hike in near future.
On March 17, Mercedes-Benz announced that it will increase the prices of all its models sold in India by up to 3 percent. This means that prices for cars making the lower price bracket, such as the A-Class Limousine will see a price hike of Rs 50,000 while top-end cars like the AMG GT 63 S 4 Door Coupe will see a whopping Rs 5 lakh hike on the ex-showroom price. The company stated that an “increase in logistics costs have been exerting significant pressure on the overall costs of the company”.Many other auto manufacturers have also indicated a likely hike in price of vehicles, come April. This includes manufacturers like Maruti Suzuki, which will increase price of its vehicles in the range of 1-6% (roughly between Rs 5000 and Rs 34,000). Renault and Nissan have also announced that they will be increasing prices. Motorcycles aren’t going to be spared either with manufacturers of performance bikes like Kawasaki expecting to pass on price hike by Rs 18,000 while budget bike maker Hero MotoCorp will hike prices up to Rs 2500 by April 1.