Semi-conductor Disruptions to Continue for Auto Manufacturers

The spike in COVID-19 cases globally due to the Omicron variant has again put the world in a tizzy with countries rushing to impose fresh restrictions to curb the fast-spreading wave of the virus. All this is already bad news for the struggling auto industry which was hoping for a better year as compared to the last two. China, the global supply chain major has seen spike in corona cases and has imposed lockdown in various cities in mainland China and Hong Kong.

These has taken a toll on the already volatile supply chain market and the disruptive semi-conductor chip manufacturing as most of the world’s major companies have component manufacturing units there as well as Hong Kong is a major transit point for the global supply chain market. We already reported that the global chip shortage disrupted the productions in 2021.

Many of the leading vendors of auto and electronic components are bracing themselves for more setbacks as they believe the woes to continue till March this year even if the curbs are lifted at the end of the month. This has led to some of the auto manufacturers to source ahead before the situation worsens as they continue to struggle with the on-time deliveries of the current backlog of orders.

The pandemic has already wrecked 2020 for the auto industry with sales and production plummeting to record lows and revenues depleting, putting pressure on the manufacturers but even after the ease of the virus in 2021 and despite witnessing huge demand for cars, bikes and other vehicles, the auto companies struggled with the blockage in the supply chain due to the rise in component costs, semi-conductor chip shortage and the disruptions in productions. However the automakers were optimistic about this year.

In the last year alone, logistics costs have increased by upto 5 times which has put additional pressure on the fragile economics of the auto industry. The increase in commodity prices coupled with the rise in input and logistics costs meant that the companies had to offset this price rise by hiking prices of their products. Some companies hiked prices of their cars thrice in the last year alone and with many companies already announcing price hike in the month of January, this fresh concern of the potential disruptions have put many of the top executives of these companies under immense pressure.

All this does not bode well for the customers as they are already struggling due to the financial and social toll that the pandemic put on them and now, they have to cope with the delays in getting their favourite vehicles on time as well as flush out more money than usual due to the continuing production and supply chin woes.In the last year alone, car manufacturers had over 10 lakh customers waiting for deliveries of their vehicles with Maruti Suzuki having the largest backlog of over 2.5 lakh vehicle orders. This goes onto show the massive effect that the pandemic and the subsequent restrictions had on the auto makers of the country and the resultant supply chain blockade took the wind out of many of the manufacturers as now they are rushing to fulfil the present orders as well as trying to source components for the near future.Will 2022 prove to be the same as 2021 for the auto industry? This is the question on everyone’s mind and considering the recent spike in corona cases, this year may as well prove to be a struggle for the car makers.