On a bi-weekly basis, CAR welcomes our audience to decompress with our President and CEO, Carla Bailo, as she covers and shares her thoughts on the latest Hot Topics happening in the automotive industry. While the biweekly newsletter primarily covers four topics, this feature story previews two of the topics covered on March 18, 2022. If you would like access to the full newsletter for better insights into critical industry issues you and your organization are facing, sign up for our mailing list here.
HOT TOPICS 3/14/2022 – 3/18/2022
Supply Chain Disruptions
- Japan chip heavyweights halt output after quake, in another blow for auto industry
- China’s new round of COVID curbs hit Toyota, Volkswagen; concerns grow about supply chains
- Russia’s invasion of Ukraine will lower car production by millions of units over two years, S&P says
- Europe’s car plants halted by lack of low-cost Ukrainian component
- Russian Nickel Compounds Pain For Carmakers Contending With Chip Shortages
The supply chain disruptions are in quite a vicious cycle. Every time we think things are settling, something else hits the industry. “How to predict” this risk is intriguing to me. What elements do you put in the mathematical equation to measure this risk? I’ve done a lot of sensitivity analysis with several levers, and if you push or pull any one of them, you obtain a different answer. When dealing with the pulls and pushes in today’s world, it is a daily, if not hourly, task. To top that, we can change supply changes as quickly as global events happen. So, how do we determine those parts to warehouse and for how long? This is the question to be answered.
The industry JIT mentality is challenged as never before. Is JIT okay if within XX-mile radius from the plant? Is JIT okay if the supplier is XX miles away? Is JIT okay if the supplier sources locally, and how do you confirm that? How do you utilize technology to study supply chains and minimize risk? It seems nobody has this one cracked yet, but I expect we’ll see more students begin to research supply chain and risk assessment. We need more people who can do this, and we need them quickly.
Rising Fuel Prices
- Gas prices are spiking — don’t expect sales of electric vehicles to follow
- Will owning an electric vehicle save you money?
- As Gas Prices Soar, Buyers Find Fewer Fuel-Efficient Car Options
- Does Charging an EV Cost More Than Filling Up Your Gas Tank Today?
- Oil prices soared, then dropped. But gasoline is still expensive. Why?
- Gas prices are already expected to top $5 a gallon, but experts lay out a scenario that could be much worse
- Uber and Lyft add fuel surcharges to rides as gas prices surge nationwide
Oil is a global commodity, so even though the US doesn’t rely much on Russian oil (6%), the global barrel price was impacted as soon as Russian exports were sanctioned. Unless OPEC increases production to make up for the gap, the oil price will remain high. The price has stabilized in recent days, but it can be volatile. US oil companies can’t turn up the switch overnight, and perhaps a better solution is to reopen pipelines within North America.
The most concerning part of this increase and subsequent increase in people’s pocketbooks are the impact on household expenses and the consequent reduction of disposable income. Combined with inflation and rising interest rates, the dollar doesn’t go as far in most households.
The question for the industry then becomes, what might be the impact on automaker sales in terms of the type of vehicle purchased? As gas price increases sensitivity to fuel economy, studies demonstrate that people begin to seriously consider their purchase when gas reaches $5 – $6/gallon. Should buyers start to pivot to smaller vehicles vs. larger pick-ups and SUVs, the profit margin for the automakers is impacted, which cascades into the dollars utilized for EV development and other future plans. The outcome depends on how long this lasts and impacts behavior.
More importantly, other headwinds are further reducing the number of vehicles produced, so the buyers may not have much on the lots to buy….my above points become slightly moot. We will continue to follow this very closely at CAR.
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President & CEO
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