The Future of Automotive Industry

In 2022, automotive suppliers face many of the same issues that have bedevilled the industry throughout 2021, as well as a host of all-new challenges

FREMONT, CA: Many of the same problems that plagued the automotive sector last year are still present, along with several emerging difficulties. The relative stability in the global supply chain that the automotive sector benefited from for many years is unlikely to be restored any time soon. Hence suppliers are having to be flexible and adjust to these ongoing problems.

Last couple of years have faced shortages, rising costs, and other unprecedented supply chain difficulties. As supply could not keep up with the soaring demand, the lockdowns swiftly gave way to shortages of many raw materials and components. Although the global shortage of semiconductors may have received the most attention, many suppliers also had trouble locating other materials, such as steel, resin, and foam. These shortages swiftly converted into fast-rising costs for many suppliers, with significant price increases that were not anticipated in suppliers' bids and were frequently not expressly covered by their supply contracts.

Automotive suppliers had a tough time acquiring materials, in addition to facing big operational and logistical challenges. Suppliers had trouble finding enough workers to keep their facilities operating at full capacity, and this issue still persists. Suppliers also had to deal with a variety of logistical difficulties, such as port delays, the Suez Canal blockade, a shortage of containers, a shortage of truck drivers, and much higher shipping prices. Over a 500 percent increase from a year earlier, the price of transporting containers from Asia to the United States skyrocketed.

Suppliers have to deal with rising labor expenses as well. The automotive supply chain exchanged a new wave of force majeure notifications and notices of commercial impracticability as a result of these severe issues. In contrast to last year, when the majority of the automobile sector shut down simultaneously, such pronouncements frequently became the centre of heated arguments as parties argued over who would bear the costs and how to continue operating.

These challenges were made even more onerous by the conduct of many suppliers' OEM clients, which further hindered their efforts to govern their supply chains. When faced with shortages, many OEMs increased their releases to unrealizable levels that were considerably above the initial EDI forecasts, leaving suppliers scrambling to determine the actual quantities that would ultimately be required. OEMs also implemented erratic rolling production shutdowns in response to the lack of semiconductors and other inputs. To meet releases and forecasts for a given volume, many suppliers have encountered instances in which they made substantial efforts, sometimes even speeding shipments, only to have their OEM suddenly cancel or cut releases.

Due to these problems, suppliers frequently held a lot of inventory and materials without receiving payments from their clients, which prevented them from having the cash flow necessary to pay their sub-suppliers. Suppliers had to furlough their employees because they could not predict how many would return once production resumed.