Auto & Transportation

Recently, the turmoil in the automobile industry, which is a powerful engine of the global economy, is threatening global economic growth, and is causing shocks in companies and communities in various countries that rely on automakers to make money and provide jobs.

u3000u3000 Every car or truck in Detroit or Stuttgart that fails to get off the production line means that some people’s jobs are threatened. They may be miners who mine iron ore in Finland, they may be workers who make tires in Thailand, or they may be Volkswagen employees who install dashboards for SUVs in Slovakia. Their livelihoods are constrained by supply shortages and transportation bottlenecks that force factories to cut production.

u3000u3000 reported that the auto industry currently accounts for about 3% of global economic output, and this proportion is much higher in auto manufacturing countries such as Germany, Mexico, Japan, and South Korea, or in auto manufacturing states such as Michigan. The slowdown in the automotive industry may leave scars that can take years to recover.

u3000u3000 The semiconductor crisis is forcing almost all automakers to reduce shifts or temporarily shut down production lines. The impact it brings may be strong enough to plunge some countries into recession. In Japan, home to Toyota Motor Corporation and Nissan Motor Corporation, a shortage of parts caused exports in September of this year to fall by 46% year-on-year—a strong testament to the economic importance of the auto industry.

u3000u3000 Ian Shepardson, chief economist of the Pantheon Macroeconomics Research Company, said: "This is a huge drag on growth and employment."

u3000u3000 The report believes that automakers can alleviate some of the shocks by raising prices and pass some of the pain on to car buyers. Ford Motor Co. and General Motors Co. announced that sales and profits have fallen sharply this summer, but they have raised their full-year profit forecasts. Daimler, the maker of Mercedes-Benz cars, said that although the company's car sales decreased by 25% in the third quarter, its net profit increased by 20%. The higher price fully made up for the loss.

u3000u3000 For workers and anyone who needs cheap cars, this pain is the greatest. Auto companies have been allocating scarce chips to high-end models and other most profitable models, resulting in long waits for low-priced models. The price of used cars has skyrocketed because of the shortage of new cars.

u3000u3000 The North American company chief executive officer of the Indian auto manufacturing giant Mahindra Group, which produces tractors for the US market, said the crisis began last year as the prices of major raw materials such as steel and copper began to rise.

u3000u3000 The report pointed out that the rebound after the new crown epidemic around the world is uneven, causing all links in the global supply chain to be out of sync and unable to connect. By the end of this summer, the United States had begun to inject booster vaccines, while the devastating epidemic in Malaysia was still causing factories to close.

u3000u3000 Mahindra quickly ran out of existing spare parts inventory, and then had to wait for replenishment. But the cargo was backlogged at the port, hundreds of ships lined up, and the container freight rate soared from US$3,000 to US$20,000.

u3000u3000Popley said that at the company’s tractor assembly plant in Bloomsburg, Pennsylvania, “we have reduced production by 25% for two consecutive months due to the “container circulation problem” in the Port of Long Beach, California.”

u3000u3000It is difficult to calculate the extent to which problems in the auto industry will affect other areas of the economy, but the impact is undoubtedly huge, because too many other industries rely on automakers. Automakers are big consumers of steel and plastics, and they support a huge network of suppliers and restaurants and shops serving auto workers.

u3000u3000Automobile factories are usually the largest private employers in their communities, and their closures are particularly destructive. Since auto factories often dominate the local economy, they are difficult to replace. A 2019 study by the International Monetary Fund (IMF) showed that unemployment caused by the closure of auto factories will continue for many years.

u3000u3000 Almost all manufactured products face a shortage of supply, including everything from toilet paper to new cars. The supply chain disruption can be traced back to the beginning of the outbreak, when factories in Asia and Europe were forced to close and shipping companies reduced their operational plans.

u3000u3000 First of all, the demand for household products has surged. The money that Americans used to spend on life experience is diverted to household items. This surge in demand has led to congestion in the systems that transport goods, such as computer chips, to factories, and finished goods are backlogged due to a shortage of containers.

u3000u3000 Now, it is difficult for ports to keep up with demand. In North America and Europe, where the containers arrived, the influx of ships overwhelmed the ports, the warehouses were full, and the containers piled up like mountains. The chaos in global shipping is likely to continue due to massive congestion.

u3000u3000 No one really knows when this crisis will end. Shortages and delays are likely to affect this year’s Christmas and holiday shopping season, but what will happen after that is still unknown. Federal Reserve Chairman Jerome Powell said that he expects the supply chain problems to "probably continue into next year."

u3000u3000 Semiconductors are not the only shortage of parts. Dan Hirsch, general manager of the Detroit office of the international consulting firm Alix Partners, said that automakers are also looking for plastic used to hold glass water, make dashboards, and foam to fill seats.

u3000u3000 Hirsch said that due to the lack of stock of a small bracket used on the SUV, the time required to repair the accident vehicle has surged from 12 days to nearly 20 days.

u3000u3000According to estimates by Alix Partners, the shortage of supply will result in a reduction of 7.7 million vehicles in this year’s auto production, resulting in a loss of US$210 billion in revenue to the auto industry.

u3000u3000 Relatively few countries contribute most of the world’s production of automobiles and auto parts. They include small countries such as the United States and China, as well as Thailand.

u3000u3000 The longer the shortage of parts and raw materials lasts, the greater the impact on the economy. The modern economy needs cars to function properly. Trucks, which are essential for the transportation of goods, are now difficult to buy, which restricts economic growth.

u3000u3000 Daimler truck department head Martin Dom said: "By next year, we will basically be sold out in Western Europe and North America."

u3000u3000 There is no sign that this crisis will end soon. Semiconductor manufacturers have promised to increase supply, but it will take years to build new factories, and auto companies may not be the most important customers of these technology giants.

u3000u3000 Wharton Professor Gard Aron said: "Semiconductor manufacturers will give priority to companies like Apple and HP in the world, not Ford."