Vanessa Miller, partner in the law firm of Foley & Lardner LLP, details the substantial challenges that the automotive industry is facing, now and in months to come.
The latest edition of Foley & Lardner’s annual Automotive White Paper reveals a number of factors that are causing pain for automotive manufacturers, ranging well beyond the impacts of the COVID-19 pandemic and initial factory shutdowns. Miller describes a “domino effect” of severe shortages of parts caused by multiple shipping issues, including lack of adequate ocean containers, heavy congestion at major U.S. ports, and the temporary blockage of the Suez Canal by the Ever Given megaship. “We’ve seen a series of events that have continued to disrupt the supply chain,” she says.
One of the most serious problems confronting automakers in recent months has been a shortage of semiconductors, which are becoming an increasingly important element in vehicles. Yet the industry has relatively little clout with semiconductor suppliers, accounting for just 2% to 3% of total demand. The resulting lack of supply has shut down many automotive production lines, even as consumer demand for cars has “massively increased.” That surge in demand caught many in the industry by surprise, Miller says.
The auto industry is responding to the crisis by reconsidering its sourcing strategies. Automakers are examining the possibility of shifting production from China and other distant countries to the western hemisphere, possibly Mexico or even the U.S. “We’re seeing companies in real time making a strategic decision to look beyond price to risk mitigation and logistics,” Miller says. Such a move must also involve the relocation of key suppliers, any one of which could cause a break in the supply chain if they encounter disruption in the regions in which they are based.
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