Russia-Ukraine: Global auto market in trouble – S&P

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Auto market data provider S&P Global Mobility said on Wednesday that the shortages hampering global vehicle production are expected to persist into 2022 before supply catches up with demand in early 2023.

The agency has downgraded its outlook for world light-vehicle output by 2.6 million units for both years, to 81.6 million for 2022 and 88.5 million units for 2023.

S&P experts cited issues relating to the supply of Ukrainian neon gas, a key ingredient for chip-making, and to the loss of Ukraine-sourced wiring harnesses. “In addition, the complete loss of Russian palladium is a tail risk with the potential to become the industry’s biggest supply constraint,” the report said.

“Our worst-case contingency shows possible reductions up to four million units for this and next year,” S&P Global Mobility’s executive director for global production forecasting Mark Fulthorpe said.

The Ukraine crisis has added to the pains suffered by automakers, who had been grappling with high prices due to Covid-related disruptions, including semiconductor shortages. This week major car manufacturers announced they will shut down plants and raise prices further as supply issues mount.

Europe car supply chain

Europe’s largest auto producers, BMW and Volkswagen, have halted manufacturing at some of their plants as the supply of critical low-cost parts from Ukraine is drying up, the Financial Times reported on Wednesday.

According to the media, citing AutoAnalysis estimates, Ukraine produces about a fifth of Europe’s supply of harnesses. There are around 40 parts factories in Ukraine, but carmakers are now racing to relocate or duplicate the equipment needed to make the components.

Wire harnesses typically bundle up to 5km (3.1 miles) of cables in the average car. Vehicles cannot be built without them because they are unique to each model.

“The problem with wire harnesses is that they are fundamental,” Alexandre Marian, managing director at consultancy AlixPartners in Paris, told the FT. “You cannot start assembling even an incomplete car without wire harnesses.”

VW chief executive Herbert Diess said: “In our case, as we are positioned in premium or close to premium, most of the wiring harnesses we put in the cars are car specific. So, it’s a one-to-one relation.”

The search for alternative suppliers is another challenge for the auto industry, which has been reeling from skyrocketing metal and energy prices, supply chains disrupted by the pandemic, as well as a shortage of semiconductor chips.

BMW said earlier it was in “intensive talks” to find new suppliers for parts. VW Group’s premium brand, Audi, said it was working to relocate their Ukrainian wire harness production to other plants or find alternative suppliers. That search includes eastern Europe, North Africa, Mexico, and “possibly” China, the company said. – Source: RT