After a pandemic and a global chip crunch, Russia’s war in Ukraine has unleashed auto makers’ third supply-chain crisis in as many years.
The fighting in Ukraine has shut down small but important industry suppliers, shutting plants far away from the conflict zone, while sanctions and severed trade routes are hindering car and parts shipments to and from Russia, once seen as a growth market.
European auto makers such as Renault SA, RNO -5.10% which owns AvtoVAZ, the Russian company that makes the Lada brand, Volkswagen AG VOW -5.83% and its brands Audi, Skoda, and sports-car maker Porsche, are among the hardest hit by the sudden cessation of business in Russia and the lack of vital parts from suppliers in Ukraine.
VW said Thursday that “against the background of the Russian attack on Ukraine and resulting consequences” it was suspending production of vehicles in Russia and exports to the country with immediate effect and until further notice.
The fallout isn’t limited to Europe. By the middle of this week, nearly a dozen global auto makers had suspended business in Russia, some shutting factories indefinitely. Toyota Motor Corp. TM -1.71% said on Friday it would keep its plant in St. Petersburg shut until further notice. Ford Motor Co. suspended its joint venture with Russia’s Sollers OJSC and halted sales to the country. South Korea’s Hyundai Motor Co. Ltd., one of the biggest car makers in Russia, shut down its plant in St. Petersburg, saying it hoped to reopen in a week.
After idling two factories in eastern Germany, VW has said production would soon be affected at its flagship plant in western Germany because of missing parts from Ukraine. And manufacturers who operate plants in Russia say the stress on supply chains has been made worse by Russia’s exclusion from the SWIFT international interbank payments system. The blockade of Russian airspace and disruptions to shipping lanes has slowed the movement of goods to a trickle.
Global auto makers turned out strong profits last year despite the global chip shortage that prevented them from producing enough cars to satisfy the strong demand in many markets. The snarled output resulted in scant selection at dealer lots and soaring new-vehicle prices, padding auto makers’ profit margins. The conflict is a new blow for the industry and could reverberate far beyond the sector, which is among the biggest industrial employers in large parts of the West.
Analysts say the initial impact of the war on some car makers could lower global vehicle production by an estimated 1.5 million vehicles this year. That is 2% less than the 84.2 million vehicles that IHS Markit projected the industry would build before the war.
That is the optimistic scenario, says Stephanie Brinley, an automotive analyst at IHS Markit.
“It could also lower production by 3 million vehicles,” she said, adding that it is far too soon to know how chaotic global supply chains will become. “We have no visibility,” she said.
Even before the war in Ukraine, VW was struggling to keep assembly lines at its main plant in Wolfsburg, Germany, running as a result of the assorted global shortages and trade route disruptions.
When the war in Ukraine began, dozens of auto parts makers shut down their factories in the country. Although Ukraine has a small car parts industry, it has become a key supplier of wiring harnesses that are needed to organize a car’s wiring and connect its various components.
Suppliers of such systems with plants in Ukraine include Leoni AG, Japan’s Fujikura Ltd., Aptiv Plc, and Nexans SA . Work at these plants stopped almost immediately after the start of Russia’s invasion, hitting VW’s factories in Eastern Europe as well as Germany.
VW idled its Zwickau plant in eastern Germany this week, where it makes the ID.4 electric car for European markets and for export to the U.S. The company also said production in Wolfsburg would begin to sputter next week and stop the following week because of a lack of parts.