Fallout from Russian invasion continues

RUSSIA’S invasion of Ukraine will have a profound effect on the international car industry.

Reuters reports that several companies, including Volkswagen and Renault, have already outlined plans to shut or shift manufacturing operations following Russia’s action.

The sweeping export restrictions announced by the US against Russia include shutting access to global exports of goods ranging from commercial electronics and computers to semiconductors and aircraft parts. 

The invasion was a factor in consulting firms J D Power and LMC Automotive slashing their 2022 global new-car sales outlook by 400,000 vehicles to 85.8 million units. 

The motor industry had already been dealing with a tight supply of vehicles due to the global semiconductor shortage.

“An already-tight supply of vehicles and high prices across the globe will be under added pressure based on the severity and duration of the conflict in Ukraine,” president of global vehicle forecasts at LMC, Jeff Schuster, said.

“Rising oil and aluminium prices will likely affect consumers’ willingness and ability to purchase vehicles, even if inventory improves,” he added. 

“We have made significant downgrades to the Ukraine and Russia forecasts due to the escalating conflict between the two and the repercussions associated with sanctions against Russia.”

The conflict could boost oil prices, which would add inflationary pressure on European and American consumers, Wells Fargo analyst Colin Langan said in a research note.

Volkswagen said it would halt production for a few days at two German factories after a delay in getting parts made in Ukraine.

Renault said it would suspend some operations at its car assembly plants in Russia next week due to logistics bottlenecks caused by parts shortages.

It did not specify whether its supply chain had been hit by the conflict, but a spokeswoman said the action was a consequence of reinforced borders between Russia and neighbouring countries through which parts are carried by truck.

The carmaker is among Western companies most exposed to Russia, where it makes eight per cent of its core earnings.

Russian carmaker Avtovaz, controlled by Renault, also said it might suspend some assembly lines at a plant in central Russia due to a persistent global shortage of electronic components.

Avtovaz also did not mention the invasion in its statement.

Finnish tyre maker Nokian said it was shifting production of some key product lines from Russia to Finland and the US, to prepare for possible further sanctions following the invasion.

Aptiv chief executive Kevin Clark said during the last couple of months the American auto parts maker had swapped high-volume parts work out of Ukraine in favour of lower-volume products “so we we’re better-positioned to manage disruption.”

Japanese auto supplier Sumitomo Electric Industries, which employs some 6000 people in Ukraine to make wire harnesses, said it suspended operations at its factories there and was talking to clients about potentially substituting supplies from other places.

Ford has a 50 per cent joint venture in Ford Sollers, which has three assembly plants in Russia.

It said it was “deeply concerned” about the situation and would “manage any effects” on its business in real time.

The US carmaker also said it would follow any laws on trade sanctions.

For carmakers, one of the supply-chain concerns created by the Ukraine conflict centres on the metals palladium, platinum and rhodium — used in exhaust-scrubbing catalytic converters.

Russia produces about 38 per cent of the world’s palladium, excluding recycled material, co-leader of consulting firm AlixPartners global automotive practice, Mark Wakefield, said.

“It’s hard to think of a global auto business that doesn’t have palladium coming from Russia,” he said.

Carmakers should not face an immediate shortage of palladium, Wakefield said, because there are stocks of the metal in London.

“There is a six-month journey before palladium finds its way into a car,” he said.

Aluminium prices had been rising before the Ukraine conflict.

A cutoff of Russian aluminium supplies would add to the cost pressures on automakers.

Japan’s biggest steelmaker, Nippon Steel Corp, said it would secure alternatives for raw material it buys from Russia and Ukraine in the event of any supply disruptions.

Nippon Steel buys 14 per cent of its iron ore pellets from those countries.

Officials said it had switched sourcing to Brazil and Australia, and the impact should be minimal.

Agricultural equipment maker Deere & Co said it had closed its Ukraine office in recent weeks as a precautionary measure.

It employs about 40 people in Ukraine.

As well, Delta Air Lines, which does not operate services to Ukraine or Russia, said on Friday it had suspended its codes-haring service with Russian airline Aeroflot.

Over the weekend Visa and Mastercard announced they had withdrawn services from Russia, which means Russians will no longer be able to use their credit cards.


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