Volkswagen Group has stalled production in Germany, citing an inability to obtain sufficient parts from Ukraine. The automaker reportedly is lacking sufficient electrical components for its Zwickau-Mosel plant and the Dresden-based “Transparent Factory” — both of which are responsible for manufacturing VW and Audi-branded electric vehicles.
While the automaker declined to identify any specific suppliers, it said that Zwickau-Mosel will be down for at least four days as the Dresden facility will only need three days of downtime. That should put them both back online by the end of the week. But that’s hardly a guarantee and problems abound elsewhere, some of which are starting to feel borderline ordinary, as the industry continues reinventing itself.
According to the Financial Times, factory closures will result in 1,200 fewer cars being produced per day. This was said to impact the assembly of VW’s I.D. models coming out of Zwickau. Demand has allegedly been so high that the company is even asking staff to drive combustion vehicles to increase the available supply of battery-driven automobiles.
From FT:
Earlier on Friday, Volkswagen chief executive Herbert Diess said that it was “too early to assess the impact” of the war in Ukraine on VW’s business. VW had already offered to fly Ukraine-based staff out of the country a few weeks ago, he added.
Rival German carmaker Mercedes-Benz said it did not yet know if it would face the same interruption of supplies from Ukraine. “We are monitoring the situation closely, but it is still too early to assess the impact of this escalation on our business,” it said in a statement. General Motors told the FT on Thursday it had “limited supply chain exposure” to Ukraine.
Although Russia and Ukraine are small markets for Volkswagen, which sold 9 [million] cars globally in 2020, both countries provide raw materials and components that are crucial to the industry’s supply chain. One large auto manufacturer told the Financial Times its employees were trying to work out whether rail deliveries that come via Russia would be disrupted.
Though the industry is treating the possibility of war-time deficits as little more than an extension of the semiconductor shortage that arrived in 2020. As chip manufacturers began issuing pandemic-related restrictions and transitioning to higher-value products, supply chains for the automotive sector dried up faster than a teardrop on Mercury.
Rolling factory closures have become the norm and automakers are becoming less interested in restoring production rates. Instead, they’re starting to examine how to maximize margins on every vehicle sold as output remains critically low.
While I have no doubt that a ground war occurring a few nations away means major implications for supply chains, automakers have been enduring severe component shortages since 2020 and have started discussing the merits of leaner inventories. Many are now publicly musing vast restructuring efforts that would reduce staffing as they transition toward EVs. But this often seems to be more about appeasing investors than ensuring prolonged profitability from the day-to-day business of being an automaker.
CEO Jim Farley recently said that Ford’s vehicles (gas and electric) weren’t achieving the kind of profitability he was comfortable with. He seemed particularly annoyed that the company’s market valuation remained low compared to a smaller, less established rival like Tesla. The proposed solution? Layoffs and finding ways to make more cash by reducing corporate bloat, ideally while manufacturing fewer cars (but more EVs) overall.
“We have too many people, we have too much investment, we have too much complexity and we don’t have expertise in transitioning our assets,” Jim Farley, Ford’s chief executive officer, said at a Wolfe Research auto conference last week “This management team firmly believes that our ICE and BEV portfolios are under-earning.”
Mary Barra suggested something similar for General Motors, with restructuring looking imminent.
“We’ll never go back to the inventory levels that we were in the past,” Barra told Wolfe Research. “In all the tragedy that surrounded COVID, we have learned a lot on how to strengthen our business, run leaner, work with the dealers, use data analytics to make sure dealers are ordering the right vehicle. There are so many elements where we’ve learned to run more efficiently that we’ll never go back from.”
Ford likewise attributed its desire for change to the global response to the pandemic, saying it was also interested in shifting to a direct-to-consumer sales model. However, you might want to keep in mind that these quotes are coming after record-high vehicle prices and record-low inventories. You know, for an industry that likes to criticize Tesla for being different, everyone sure seems to be blindly copying everything it does. Meanwhile, I’ve been wondering when the parade of excuses will stop being enough and people start expecting the industry to take some amount of ownership for the constant production shortfalls.
[Image: Seneline/Shutterstock]
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So I guess this is the second time VW production was slowed by war.
To quote Boney M, “Oh, those Russians”
With negotiations going on, I wonder if VW will have a SEAT at the table?!
I found this interesting (you might too):
https://www.reuters.com/business/autos-transportation/auto-truck-makers-suspend-some-business-russia-following-invasion-2022-02-28/
Very interesting. GM sells 3,000 units per year. High end up-armoured Cadillac SUV’s ? GM was to stop dealing with Russia.
Ford has investments. They said they were concerned for their employees. No comment on stopping.
Cummins would not comment on engine contracts.
It looks like most companies are making efforts to cut ties.
“But this often seems to be more about appeasing investors than ensuring prolonged profitability from the day-to-day business of being an automaker.”
Prolonged profitability ensures survival, and therefore investors. The transition to EVs is very expensive and risky, and I actually think the mfrs care about surviving while they attempt it. The inability to source parts is a big complication.
The first part of this post (about Ukrainian parts supply) was actual news.
Then Matt got out his sledgehammer….
Stick that sledgehammer up your arse.
I’m unsure of what is meant by “his sledgehammer”. Arguably, if what Matt says is disagreeable then perhaps a counter argument to his article might be more helpful to show where he might be incorrect. And, thanks for not resorting to name calling. That is refreshing.
Sergio Marchionne was concerned about overproduction in the auto industry and felt cutbacks and business closures were inevitable. Covid and Putin are convenient foils for a fat and uncompetitive industry.
@Lou–I am sure there are other excuses we have thought of. Farting cows could definitely effect production of vehicles.
“Farting cows” are contributing to global warming. Cue our caped crusader.
“I’m doing something about the methane issue – I’m EATING the cows!”
– Ron White (from You Can’t Fix Stupid)
Because making fun of methane emissions makes them go away.
If it’ll cost you a dime and admit that you’ll have to make changes, you can’t acknowledge it. SAD!
> Because making fun of methane emissions makes them go away.
A match, lighter or applicable ignition source will work just as well.
If it’s only a dime and you actually cared, you could pay like 20 bucks and make it all go away. It doesn’t and you don’t fnckhead
Farting cows may be seen weekdays at 11 on ABC and CTV.
I don’t watch TV so who would that be? Most of the bovine effluvia would be evening prime time. The Faux News types come to mind.
This sounds less like news about Putin’s land grab disrupting a supply chain and more like news about automakers preferring profit to volume. The model there isn’t Tesla so much as Apple, which has never produced any product on which it doesn’t expect to generate the margin of its choice. Automakers have enjoyed the environment of solid profitability and will probably not be in any great hurry to go back to putting $5k on the hood of cars. But the other lesson of Apple is that you have to distinguish your products one way or another (without getting into the contentious argument of whether those distinctions are actually worth it) to maintain those margins. Some OEMs are better at that than others.
Once the chip shortage subsides you will see companies like Stelantis, Hyundai, and Kia up their production and increase market share. Ford’s plan of just ordering customer vehicles only will crumble once Ram eats into Ford’s market share. As for GM it will continue to shrink to be a bit player in the vehicle market. GM will be slower to react to market changes and if compact pickups take off it might take GM 5 years to come up with one. It will take a couple of years to see any noticeable change in production volume but it will happen.
“Ford’s plan of just ordering customer vehicles only will crumble once Ram eats into Ford’s market share.’
Agree as we have become a society of instant gratification.
Yes but also having to wait 8 months for a truck that I ordered last July. Understand the chip shortage but there are other nonelectrical parts that don’t contain chips such as bed liners, spray in bed chemicals, and some other components. I would have cut out the spray in bed and waited to take delivery and then had an after market spray in bed if I knew there was a shortage which causes another delay. There were a few other extras I wanted but I was told that would cause delays that I will install later. Even before Covid Ford was having issues with completing orders. Ford lacks the flexibility to adjust to changes in demand but they are not alone (GM).
“Chip shortage.”
Or is that just an excuse to rapidly change to a profit over volume business model? Keep supply low and the profits roll in.
With all the products that use chips it seems it’s only the automakers that can’t seem to get them. No other business is blaming the “chip shortage” every single week like automakers.
What I don’t understand is why there’s all these specialized “chips!”
Aren’t the chips just part of something that goes together on a printed circuit board, which is then used to make a module? What specialty chips are there who’s only lot in life is to turn the bun warmers on and off?!
@sgeffe:
This is a good explanation…
https://www.cnet.com/roadshow/news/features/automotive-cars-computer-chip-shortage-2022/
Key takeaway:
“The automotive industry requires older chips, ones that make semiconductor manufacturers less money.”
So the semiconductor manufacturers are doing the same thing automakers are doing – prioritizing production for their most profitable products.
That’s what I thought.
You’d think that the suppliers would have pushed more module-type stuff, like a board that goes with a seat that will take a CAN-bus signal to turn the warmers or vents on, or to adjust the seat, and the automaker supplies the doohickey to get the signal from the CAN-bus to the seat module. All using commodity stuff! Standardization and all that!
Of course I work for the government, so I, of anyone, should know that the most logical solution is usually not the road taken! :-D
You know, as I type this, I can look at all sides of the warehouse and see well over 100,000 brand new Samsung S22 phones as far as the eye can see. (I’m an IT guy and support the many types of systems that it takes a fulfillment center to operate.) Funny how Apple during their last launch and their upcoming one soon, and also Samsung seem to have no problems getting chips into their phones – basically the same kind of microprocessor and boards that the systems in our cars use. About the only thing that has been an issue to get have been iPads. And this is one fulfillment center in the Midwest that is part of a huge network of country-wide warehouses that provide order fulfillment for AT&T, T-Mobile/Sprint, Cricket, and Verizon.
I think the automakers and especially the auto dealers are focusing more on today’s greed instead of the bigger picture that will slap them in the face probably by 2024. With new car prices averaging over $46,000 and used cars averaging around $30,000, that will greatly limit who can buy or replace their car or truck. And what consumer is going to want to shop at a dealer who, just last month (for example), was tacking on $10,000 in upcharges that mean nothing to the buyer? How the dealers act now might determine who survives this current era of car buying.
I think the chip shortage sob story has played itself out. It was such an easy crutch in the beginning. But that sob story ended about a year ago, and the electronics manufacturers showed that they were still in business. Now it has morphed into supply chain issues. And with my MX-5 on order, it has been loaded onto the boat, but was told that due to delays at the port, and delays due to train transportation staffing problems, and then the last mile transit to the dealer that there’s still a while to go before it’s parked out front.
“Funny how Apple…and also Samsung seem to have no problems getting chips into their phones…”
Apple and Samsung earn sufficient profit to lock up supplies of parts early; they also design their own chips, as does Tesla, so they only need to secure fab capacity. The legacy auto makers don’t have that leverage.
Every credible report on the automotive chip shortage indicates that most of the auto companies are using older more primitive chips. They reacted to a downturn in sales in a myopic fashion and cancelled contracts or chose not to renew them. Chip manufacturers therefore upgraded to manufacturing more profitable “new” chips.
This portion is based on my opinion, those domestic “too big to fail” manufacturers expected to have their chip suppliers kiss their fat corporate azzes when they wanted to renew contracts. Tough sh!t. It looks like GM was the worst culprit.
I do have to clarify that with the iPhone 13 launch last fall that numbers were down a little bit due to Apple having minor issues, but well over a couple of hundred thousand left here that first week.
But Master said something that does ring true – Samsung and Apple locked in the parts early. That’s how Samsung has been able to have three major launches in less than 9 months (S21, the Flip and Fold phones, and now the S22). The automakers, most of them tend to run in a just-in-time mode, had to be getting the same information that the electronics companies were getting. Were they worried about stockpiling a large amount and having their quarterly numbers look bad for a quarter? Did they not believe that a major shortage would hit?
I think I’m the most upset at how the dealers are treating buyers during this shortage. I order from HP and Dell quite often and they aren’t jacking up the prices of their PCs, laptops, and servers. It just takes a while due to backlog and transit delays. The automakers don’t seem to have learned a lesson. After each boom period, and I would call this in terms of profit a boom for them – more money, less production, there is always a bust and then a bunch of CEOs hauled in front of a Congressional Committee holding their hands out asking for the spare change under the sofa.
I’ll say it here on March 1, 2022 that this upcoming collapse is going to me monumental. Eventually they will run out of buyers who can or will pay $45,000 for a $32,000 car. There will be fewer trade ins. And the whole barely standing house of cards called the auto industry will collapse and have to restructure.
flyersfan,
Already seeing it. The used car market is so inflated that unless you absolutely need a ride, you shouldn’t buy. Cars that were 20k or less 2 years ago are now in the mid 30’s.
Carvana may be the worst offender. Those guys can eat a bag of d***s.
My son works for a father & son dealership chain (Kia,GM,Stelantis). They’ve been shipping most of their used vehicles to the USA due to pricing. They are making a killing even though the border is 500 km or more away.
I read of a fellow who could not sell his luxury SUV a year after he bought it cash due to a dealer lien. People are buying new vehicles and flipping them in the USA.
carvana bought ATTESA auction house recently too
@flyersfan:
Apparently the chips automakers use are older and don’t make the semiconductor manufacturers as much money, so the automakers suck hind teat.
What Matt wrote seems somewhat contradictory regarding Tesla. Tesla is cornering market share while ‘losing money’ on car sales.
From a report posted in late January 2021:
‘Tesla shares are now worth roughly as much as those of the combined 12 largest automakers who sell more than 90% of autos globally.
Tesla’s lofty stock performance — up 743% in 2020 — makes it one of the most valuable U.S. companies in the world. Yet the 500,000 cars it sold in 2020 were a sliver of more than 70 million vehicles estimated to have been sold worldwide.
Tesla shares are now worth roughly as much as those of the combined 12 largest automakers who sell more than 90% of autos globally.
What Tesla has that other automakers don’t is rapid growth.
“These guys are losing money selling cars. They’re making money selling credits. And the credits are going away,” said Gordon Johnson of GLJ Research and one of the biggest bears on Tesla shares.’
https://www.ctvnews.ca/business/tesla-s-dirty-little-secret-its-net-profit-doesn-t-come-from-selling-cars
It matters little if Tesla looses money on each vehicle sold when they make billions on shares. Ford or GM would prefer to be in Tesla’s position as opposed to selling for a profit with low share value.
Which begs the question ‘which is currently favoured by investors, market share or net profit?’ It would appear that market share is more important in regards to EV sales. And that investors appear to believe that ICE sales represent a declining/destined to become obsolete market.
What the manufacturers and dealers are doing for short term profits will come back to haunt them. The market is now open for the Chinese EVs and I am not talking about Chinese Buicks or Volvos. Despite that Ford and GM have taken the Korean manufacturers for granted as well as Ram.
I totally forgot about this, but I wonder how this will effect Bremach? Im guessing they are now done for.