The auto sector is currently grappling with a plethora of issues that are giving headaches to manufacturers and buyers alike. Multiple factors are contributing to these challenges, including the aftermath of the Coronavirus pandemic, raw material shortages, and logistical complications.
Factories shutting down due to the pandemic, logistical difficulties caused by a scarcity of ocean-going vessels, containers, and truck drivers, and delivery problems affecting job vacancies are some of the issues fueling this crisis. The supply chain crisis costs are surging significantly higher than anticipated, leading to substantial price hikes for both automakers and car customers.
Mark Wakefield, co-leader of the automotive and industrial practice at AlixPartners, brought up the matter of unusual disruptions the industry is facing. From scarcity of materials like forest and steel to labor shortages, manufacturers now have no room for mistakes.
Production halts and slowdowns at auto factories worldwide are impacting the vehicle supply, resulting in a 7.7-million-vehicle decrease in global production compared to the optimal scenario, according to AlixPartners. Meanwhile, soaring new and used car prices are reaching record highs due to the high vehicle demand and the limited supply.
The automakers are expected to bear approximately $210 billion in losses due to the production halts this year, double the amount forecasted in May, with an additional $150 billion to be spent on higher part and raw material costs. The costs will add approximately $2,000 per vehicle, making the situation tougher for the industry and customers.
Although some of these losses will be offset by higher prices, automakers will still need to absorb the additional costs. The transition to electric vehicles (EVs) is also introducing new challenges, such as the need for efficient charging infrastructure and technological investments, which are compounding the current crisis.
In the past year, the microchip shortage initially impacted the auto industry. As Covid-19 outbreaks decreased, and automobile sales recovered faster than expected, auto manufacturers realized they could not rebuild their chip orders as the technology sector had snapped up existing stocks for laptops, tablets, smartphones, and 5G networks.
The increased chip demand, coupled with fresh Covid-19 outbreaks and forced chip factory shutdowns in heavily affected countries like Malaysia, is adding to the supply chain issues. Moreover, shortages have been reported in various other critical materials, making the situation more complex for the automotive sector.
So, it appears that the industry has no immediate relief in sight, as every shortage or production halt affects companies worldwide for various reasons. The industry has no "shock absorber" for these challenges, as CEO Dan Hearsch of AlixPartners pointed out. These issues continue to intensify, making it a critical time for the auto sector.
