EconomyFinancialRussian invasion of Ukraine unleashes a perfect storm in...

Russian invasion of Ukraine unleashes a perfect storm in the auto industry

The reason that a new vehicle displayed at a dealership in Mexico has a CD radio instead of the infotainment screen or does not have a wireless charger for the Smartphone may be almost 11,000 kilometers away, in the Ukraine.

The European country, which was invaded on February 24 by Russian troops, is one of the largest suppliers of neon gas, necessary to manufacture semiconductors, and the lack of this input has further prolonged the global shortage of chips that began at the end of the year. of 2020.

In addition, Ukraine concentrates several of the harness, circuit and electronic card plants that supply assembly plants in Europe, mainly.

“We have two circuit and electronic card plants in Ukraine that serve 60% of the assembly plants in Europe, especially Volkswagen, Audi and BMW,” says Víctor Manuel Morales, director of operations and regional development of Jabil’s operation. , an American manufacturer of electronic components.

BMW and Volkswagen warned that the Russian invasion of Ukraine was causing shortages of some vital components, forcing them to cut vehicle production in Europe. Executives from both companies said wiring harnesses, which bundle and organize wires or cables, were in short supply because their main suppliers were in western Ukraine.

As manufacturers try to deal with rising commodity prices, fueled by concerns about tight supplies from Ukraine and Russia, another major producer of metals such as nickel and palladium used in automobile production; the alarms are going off in the markets that are supplied by European manufacturing models, Mexico among them.

“Volkswagen is a global brand and as such we are not immune to the environment. And, indeed, these variables, which are beyond us, impact the business and the way it develops”, says Edgar Estrada, director of Volkswagen.

S&P forecasts that due to the war, car production in Europe will experience the biggest disruption since the 2020 lockdowns. The analysis firm cut its forecast for Europe by 1.7 million units, between the loss of demand in Russia and Ukraine due to to the armed conflict, and the shortage of parts related to chips and wiring harnesses.

100 days after the Russian invasion of Ukraine, automakers are far from seeing the light at the end of the tunnel. The geopolitical conflict in Eastern Europe adds to the new lockdowns in China to create a perfect storm: a reduced supply of chips, cards and harnesses amid a boom in demand for these components to maintain global connectivity.

“Not only is the automotive industry demanding more chips for a car, but in practically all industries the demand for chips has increased,” says Morales. Jabil, for example, which supplies electronic components to the automotive industry, medical device manufacturers and telecommunications companies, has seen a general increase in electronic components in all these industries. “Before you saw an analog light meter and now they are also digital,” he says.

More expensive cars and less technological?

The irruptions that the armed conflict has caused in the global supply chain has forced vehicle manufacturers to make their production lines more flexible and to change some standard equipment in the vehicles.

Volvo, for example, has temporarily removed the wireless charger from some of its models, as has BMW.

General Motors has also removed “some standard features and options” from some of its vehicles due to a global supply shortage of semiconductors. The American manufacturer asks customers to check with their local Chevrolet dealer for vehicle specifications prior to purchase. “Vehicles that are not equipped with the automatic stop/start (system) will be less fuel efficient,” warns the US manufacturer in a note recently added to a statement that talks about the efficiency of its Bolt EUV electric vehicle.

Both automakers and their suppliers are diversifying the means of transportation to move cars, components and spare parts, while developing new real-time monitoring systems.

But all of these tweaks have raised operating costs, and of virtually all component manufacturers. Jabil, for example, used to pay $2,500 to transport a container full of harnesses from China to the port of Manzanillo, and now pays $9,800. Before, he used to pay around 1.50 to 2.50 dollars per kilo in air cargo, now he pays 5.7 dollars.

These cost overruns of between 300% and 400% have made the components and, consequently, the cars more expensive. “All these costs, not only of the components but of the chain, have been partly absorbed by the industry and partly passed on to the end user. A car that cost 200,000 pesos right now does not go below 300,000 pesos,” says Morales.

Autonomous driving, a promise that fades in big cities?

The autonomous vehicle will reduce traffic and road accidents. But its massification in Mexico could take up to two more decades.

China displaces India as the largest supplier of cars for Mexico

The Asian giant surpassed India as Mexico's largest supplier of vehicles thanks to the arrival of new Chinese brands and to GM increasing the sale of Chinese-made models.

The Yaris sedan is renewed! This will be its price, equipment and engine

The Japanese manufacturer decided to add a more equipped version to capture those customers who are looking for more security elements within the subcompact sedan segment.

90 month loans? It is not the only alternative to buy a car with...

The assemblers try to promote the sale of their units through credit, but beyond just lengthening the terms, they are developing new schemes that allow low monthly payments.

LAST MINUTE: Renault plans to reduce its participation in the capital of Nissan

Renault could reduce its share to just 15% of Nissan, showing interest in entering the new electric vehicle entity "Ampère".