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Thomas Goldsby, professor and Haslam Chair in Logistics in the Supply Chain Management Department of the University of Tennessee-Knoxville, discusses the changes in automotive supply chains being wrought by the coronavirus pandemic and shifts in consumer buying habits.
The automotive industry isn’t unique in being deeply affected by the pandemic. But it has already experienced something of a surprise in recent months. Expectations were that lockdowns, business closures and shelter-in-place rules would result in a steep drop in demand for new and used cars. Instead, as people have continued to drive personal vehicles, avoiding public transit, demand has been robust.
Meeting that demand is another matter entirely. On the supply side, “it’s been very challenging to get products around the world,” Goldsby says. The temporary shutdown of Chinese factories at the beginning of 2020 caused a ripple effect throughout global supply chains. Auto manufacturers found themselves competing for a limited supply of microprocessors with makers of televisions, video games and other “smart” products. As a result, they have had to slow production of new vehicles.
Yet another big change affecting the automotive industry is the growing popularity of electric cars, which is no longer tied to the price of gas. “They have only gotten to be more in demand and in fashion, even without skyrocketing fuel prices,” Goldsby says. And that has led to shortages in batteries — a problem that Tesla has addressed by in-sourcing that critical component, and creating its own battery plant.
Sourcing patterns are changing as well. While manufacturers aren’t abandoning China entirely, they are diversifying their sourcing strategies in order to mitigate the risk of disruptions such as the current pandemic. A good portion of that production is expected to return to the western hemisphere, especially Mexico, Goldsby says.
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