The New Normal in the Automotive Supply Chain By Daron Gifford, Partner and Automotive Consulting Leader, Plante Moran
WHILE COVID-19 HAS DISRUPTED THE AUTO SUPPLY CHAIN, IT HAS CREATED NEW OPPORTUNITIES TO ESTABLISH A STRONGER U.S. FOOTPRINT, UTILIZING AUTOMATION AND OTHER NEW TECHNOLOGIES. The global supply chain can no longer meet demand, exposing structural flaws in the automotive industry’s supply chain that will not be easily resolved and returned to a “normal” state in the COVID-19 world.
GLOBAL INSTABILITIES
or immediate evidence of disruptions in the automotive supply chain, you need to look no further than your local dealer. Many lots are nearly empty of new vehicles, with average dealer inventories across the U.S. far below the normal 50–60 days’ supply. How did this happen? Of course, the COVID-19 pandemic is a major part of the problem. When automotive production was abruptly halted in March, there were not any new vehicles being produced until early May. Even then, production has been proceeding in fits and starts. At the same time, consumers have continued to purchase vehicles, keeping auto demand surprisingly strong in an uncertain economy. OEM assembly lines have been attempting to move up to full production, but most are not there yet. While some blame it on productivity problems from social distancing, lack of labor available to come back to work, or line shutdowns due to coronavirus infections, the key culprit has been the automotive supply chain. As suppliers have been trying to ramp up, they have been hamstrung by their own designed global supply chains. Part volumes coming from Asia, especially China, are still recovering to prior levels. Trade disputes with China have not helped. And other closer countries, such as Mexico, continue to struggle with infection levels and manufacturing shutdowns on a daily basis.
Just since the turn of the 21st century, the U.S. economy has been disrupted by two major events that created catastrophes to the business world — 9/11 and the Great Recession of 2008–2009. The COVID-19 pandemic has been another economic crisis; however, it has been dramatically different. The extreme impacts to economies around the world liken it closer to World War II. Virtually every country has felt the residual effects ranging from complete lockdowns to frightened citizens who have been displaced by economic retractions. Trade policy disfunctions have also come into play. U.S. and China relations are at a new low point. Tariffs on steel, aluminum, and other products continue to be in force, and technology disagreements such as TikTok and Huawei are in the headlines daily. There is very little that can be predictable about trade in the near or long term. Combine these current global manufacturing challenges with “lean” supply chains developed over several decades, and you find an auto industry unable to function efficiently or come back quickly. Uncertainty about
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