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DETROIT – BMW has stopped production at two German plants. Mercedes is slowing down work at its assembly plants. Volkswagen, warning of production shutdowns, is looking for alternative sources of spare parts. For more than a year, the global automotive industry has struggled with a catastrophic shortage of computer chips and other vital components that has shrunk production, slowed deliveries and pushed up prices for new and used cars that can not reach millions of consumers. Now, a new factor – Russia’s war against Ukraine – has created another hurdle. Critical electrical wiring, made in Ukraine, is suddenly inaccessible. As consumer demand is high, materials are scarce and war is causing new unrest, vehicle prices are expected to move even higher next year. The damage of the war to the automobile industry first appeared in Europe. But U.S. production is likely to suffer eventually, too, if Russian metal exports are cut off – from palladium for catalytic converters to nickel for electric vehicle batteries. “You only need to lose a piece to not be able to build a car,” said Mark Wakefield, co-head of global car unit at consulting firm Alix Partners. “Any hit on the road turns into either a production shutdown or a huge unplanned increase in costs.” Supply problems have plagued the auto industry since the pandemic broke out two years ago, sometimes closing factories and causing shortages of vehicles. The strong recovery that followed the recession caused demand for cars to far outstrip supply – a mismatch that pushed prices for new and used vehicles far beyond overall high inflation. In the United States, the average price of a new vehicle rose 13% last year to $ 45,596, according to Edmunds.com. Average used car prices have risen much further: They have risen 29% to $ 29,646 since February. Prior to the war, S&P Global had predicted that global automakers would build 84 million vehicles this year and 91 million next year. (By comparison, they built 94 million in 2018.) It now forecasts less than 82 million in 2022 and 88 million next year. You only need to lose one piece to not be able to build a car.

– Mark Wakefield, Alix Partners Global Automotive Unit

Mark Fulthorpe, CEO of S&P, is among analysts who believe that the availability of new vehicles in North America and Europe will remain very limited – and prices high – until 2023. Exacerbating the problem, buyers who have been billed by the new The car market will intensify the demand for used cars and will keep these prices high, also – prohibitive for many households. Eventually, high inflation throughout the economy – for food, gasoline, rent and other necessities – will likely leave a huge number of ordinary buyers unable to afford a new or used vehicle. Then the demand would decrease. And so, in the end, that would be the prices. “Until inflationary pressures start to really erode consumer and business opportunities,” Fulthorpe said, “it will probably mean that those who tend to buy a new vehicle will be willing to pay the highest dollar.” One factor behind the declining production prospects is the closure of car factories in Russia. Last week, French carmaker Renault, one of the last carmakers to continue manufacturing in Russia, said it would suspend production in Moscow. Ukraine’s transformation into a war zone also hurt. Wells Fargo estimates that 10% to 15% of the vital wiring belts that supply vehicle production in the vast European Union were made in Ukraine. Over the past decade, automakers and spare parts companies have invested in Ukrainian factories to cut costs and gain proximity to European factories. Lack of wiring has slowed factories in Germany, Poland, the Czech Republic and elsewhere, with S&P reducing its forecast for global car production by 2.6 million vehicles for both this year and next year. Deficiencies could reduce German vehicle exports to the United States and elsewhere. In this March 21 video, Mark Wakefield, co-head of AlixPartners global automotive unit, speaks during an interview with the Associated Press at the consulting firm’s offices in Southfield, Mich. (Photo: Mike Householder, Associated Press) Wiring harnesses are bundles of cables and connectors that are unique to each model. can not be easily renewed in another spare parts manufacturer. Despite the war, strap makers such as Aptiv and Leoni managed to reopen factories sporadically in western Ukraine. However, Joseph Massaro, Aptiv’s chief financial officer, acknowledged that Ukraine was “not open to any kind of normal commercial activity”. Dublin-based Aptiv is trying to move production to Poland, Romania, Serbia and possibly Morocco. But the process will take up to six weeks, leaving some automakers short of spare parts during this time. “In the long run,” Massaro told analysts, “we need to assess whether and when it makes sense to return to Ukraine.” BMW is trying to coordinate with its Ukrainian suppliers and is launching a wider network of spare parts. The same goes for Mercedes and Volkswagen. However, finding alternative supplies can be almost impossible. Most spare parts factories operate close to capacity, so a new workplace will have to be built. Companies will need months to hire more people and add shifts. “The training process to accelerate a new workforce is not something overnight,” Fulthorpe said. The Mercedes stars are on display at the Daimler-Benz plant in Sindelfingen, southern Germany, on February 1, 2011. (Photo: Michael Latz, Associated Press) Fulthorpe said he envisages further stricter supply of materials from both Ukraine and Russia. Ukraine is the world’s largest exporter of neon, a gas used in lasers to carve computer chip circuits. Most chip manufacturers have a six month supply. at the end of the year, they could stay a while. This would exacerbate the shortage of chips, which before the war delayed production even more than automakers expected. Similarly, Russia is a major supplier of raw materials such as platinum and palladium, which are used in catalytic converters to reduce pollution. Russia also produces 10% of the world’s nickel, a key component in EV batteries. Mineral supplies from Russia have not yet closed. Recycling can help reduce scarcity. Other countries may increase production. And some manufacturers have stored the metals. But Russia is also a major producer of aluminum and a source of cast iron, which is used to make steel. Nearly 70 percent of US cast iron imports come from Russia and Ukraine, says Alix Partners, so steelmakers will have to switch to production from Brazil or use alternative materials. Meanwhile, steel prices have skyrocketed from $ 900 a ton a few weeks ago to $ 1,500 now. So far, negotiations for a ceasefire in Ukraine have gone nowhere and the fighting is raging. A new rise in the virus in China could also reduce spare parts supplies. Industry analysts say they have no clear idea when spare parts, raw materials and car production will flow normally. Even if a ceasefire agreement is negotiated, sanctions against Russian exports will remain unaffected until a final agreement is reached. Even then, supplies would not start to flow normally. Fulthorpe said there would be “more hangovers due to disruptions in the extended supply chains”. Wakefield also noted that due to the severely limited demand for vehicles around the world, even if the automakers resume full production, the process of building several vehicles will be prolonged. When can the world produce enough supply of cars and trucks to meet demand and keep prices low? Wakefield does not claim to know. “We are in an environment that raises prices, a limited (production) environment,” he said. “This is strange for the car industry.” ×

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Tom Krisher and Kelvin Chan