It’s no secret that the automotive supply chain has dealt with a fair share of disruptions in the past couple of years. These disruptions have affected everyone from manufacturers to dealers and consumers.
And while you may not be able to predict every supply chain disruption in advance, RPM can help you stay up-to-date about what’s going on and inform you of potential supply chain issues so that you can be prepared for what’s next.
What Is the Automotive Supply Chain?
The automotive supply chain is how we get vehicles, and while this may seem simple in theory, it’s much more complicated in reality. In fact, the automotive supply chain is one of the most complicated supply chains in the world since it deals with so many different players and components.
The three main components of the automotive supply chain are suppliers, manufacturers, and dealerships. Suppliers are the foundation of the automotive supply chain as they provide the manufacturers with the materials that are needed to produce vehicles. Manufacturers are then responsible for turning these raw materials into drivable vehicles. Finally, dealerships sell these vehicles to consumers.
Contrary to popular belief, each one of these components is separate from the other. This means that the Ford dealership that you bought your new Bronco from last year didn’t actually manufacture the vehicle. Instead, they simply purchased it from a manufacturer, transported it to their lot, and sold it to you at a higher price, of course.
What Causes Automotive Supply Chain Disruptions?
Since the automotive supply chain is so complex, it’s highly vulnerable to disruptions. As we’ve come to find out, it doesn’t take much to disrupt the automotive supply chain.
More specifically, the automotive supply chain can be disrupted by everything from natural disasters to public health emergencies to geopolitical conflicts and everything in between. In fact, we are currently seeing disruptions to the automotive supply chain due to these three factors.
Let’s take natural disasters, for example. Just over 10 years ago, a large earthquake and subsequent tsunami devastated the Tokhu region of Japan. As a result of this natural disaster, automobile manufacturing facilities in the area had to be shut down, including facilities owned by automotive giants like Toyota, Nissan, and Honda.
A more current example comes in the form of the COVID-19 pandemic. Due to outbreaks of the virus and the corresponding risks to public health, automobile manufacturing plants all over the world, starting in China, had to cease vehicle production with little to no warning or planning.
Even more recent is the geopolitical conflict between Russia and Ukraine. These countries are important sources of neon gas and palladium that are used to produce semiconductor chips, the supply of which is still struggling from the COVID-19 pandemic.
Furthermore, sanctions on Russia have caused many companies, including automotive companies, to cease operations and pull out of the country, including automakers like Hyundai, Volkswagen, and Toyota.
Automotive Supply Chain Disruptions: 6 Key Things To Watch For
The automotive supply chain can be unpredictable, so here are six key things to watch for to help you stay ahead of the curve:
1. Microchip Shortages and the Automotive Supply Chain
The microchip shortage has gotten a lot of publicity over the past couple of years — and for a good reason. The microchip shortage has wreaked havoc on the automotive supply chain and has prevented the sale of thousands of otherwise finished vehicles that are now just sitting in dealership lots.
But what exactly caused this shortage? During the early days of the Coronavirus pandemic, people were stuck quarantined at home and weren’t driving anywhere.
Instead, they were purchasing tons of new electronic devices to entertain them in the meantime. This meant that instead of chips going to automobiles, they were going to consumer electronic devices like televisions, computers, tablets, video game consoles, etc.
It was estimated that the global chip shortage cost the auto industry $210 billion in revenue in 2021 alone. Two years later, there is, unfortunately, no end in sight for this global shortage; it is expected to continue to be an issue throughout 2022 and even 2023.
2. The Impact of COVID-19 on Manufacturing
While COVID-19 certainly played a substantial role in the chip shortage, it has impacted the automotive supply chain in other ways that warrant mentioning. As you may recall, COVID-19 first appeared in the Chinese city of Wuhan, which is home to hundreds of automotive suppliers and handles 9% of Chinese automotive production.
When the disease first appeared, countries all over the world scrambled to avoid it. They did this by suspending flights and shutting down their borders to both people and products. Unfortunately, these attempts to contain the spread of the virus were futile, and it eventually spread all over the world. Europe was especially hard-hit, and public health regulations forced automotive manufacturers to shut down their production lines in many European countries.
3. Changing Sourcing Locations Can Affect the Automotive Supply Chain
As a result of the COVID-19 pandemic, many auto manufacturers are now changing their sourcing locations to places closer to home rather than abroad. Manufacturers don’t want a repeat of the China situation. Therefore, they are looking to diversify their suppliers — geographically and otherwise
.
4. Big Tech and the Auto Industry
Big tech has taken a big stake in the automotive industry in recent years. However, the main issue here is that the automotive industry consistently lags behind the tech industry by at least a few years since it takes a long time to design, test, and manufacture new vehicles. As a result, you may be forced to choose a car based on what type of software it uses rather than prioritizing other factors like gas mileage, safety, design, etc.
5. Changes In the Supply Chain Structure
Several unprecedented and largely unpredictable disruptions to the supply chain have caused many suppliers and manufacturers to make changes to the structure of the supply chain itself in an attempt to limit future vulnerability. And while it may be impossible to predict the future, these changes are designed to protect and insulate the supply chain from uncontrollable issues locally, regionally, and globally.
6. The Increased Demand for Smarter Cars
The consumer demand for smarter cars with more features that make their lives easier has been rising rapidly. Tesla, for example, has been ahead of the curve in terms of smart, electric vehicles, with other carmakers stuck playing catch up.
We can look forward to more automated features in new cars, including automated safety features, parking, and even driving. Of course, these new features mean changes in production that ultimately impact the auto supply chain.
Conclusion
While there may not be an easy fix to automotive supply chain disruptions as a whole, there is an easy fix to automotive transportation issues in the form of a logistics provider like RPM.
RPM is a top logistics provider in vehicle transportation with more than 40,000 carriers who are ready and willing to meet all your vehicle shipping needs from OEM, retail, rental, remarketing, auctions, fleet management, and everything in between.
Reach out to the logistics experts at RPM today to see how we can help.
Sources:
After the Disaster in Japan | Automotive Logistics
Survey Finds Auto Industry Hit Hardest by Supply Chain Disruptions During COVID Pandemic | CNBC
How Russia's War With Ukraine Will Impact the Auto Industry | Motortrend
