Automakers slow production after Russian invasion, other companies scramble too

Several companies, including automakers Volkswagen and Renault and tire maker Nokian Tyres, announced plans Friday (February 25th) to close or relocate manufacturing operations after Russia invaded Ukraine.

After invading earlier this week, Russian forces continued their advance on Friday as missiles pounded Kiev and authorities said they were preparing for an assault aimed at overthrowing the government.

The United States announced sweeping export restrictions on Russia on Thursday (February 24th), hammering away at its access to global exports of goods ranging from commercial electronics and computers to semiconductors and aircraft parts. This could cause companies to change their manufacturing plans or seek alternative supply lines.

The invasion was a factor in consultancies JD Power and LMC Automotive slashing their 2022 global new-car sales outlook from 400,000 vehicles to 85.8 million units. The automotive industry was already facing a limited supply of vehicles due to the global shortage of semiconductors.

“An already tight supply of vehicles and high prices around the world will come under additional pressure due to the severity and duration of the conflict in Ukraine,” said Jeff Schuster, president of global vehicle forecasts at LMC.

“Rising oil and aluminum prices will likely affect consumers’ willingness and ability to buy vehicles, even if inventories improve,” he added. “We have significantly downgraded the outlook for Ukraine and Russia due to the escalating conflict between the two and the repercussions associated with sanctions against Russia.”

The dispute could push oil prices above $100 a barrel, adding inflationary pressure on European and American consumers, Wells Fargo analyst Colin Langan said in a research note. While consumers were willing to pay more than list price for new vehicles, the sustained rise in gasoline prices could impact the long-term recovery, he said.

German Volkswagen said it would halt production for a few days at two German plants after a delay in manufacturing parts in Ukraine.

France’s Renault has announced it will suspend some operations at its car assembly plants in Russia next week due to logistical bottlenecks caused by parts shortages. It did not say whether its supply chain had been affected by the dispute, but a spokeswoman said the action was a consequence of the tightening of borders between Russia and neighboring countries through which the parts are passed. transported by truck.

The automaker is among the Western companies with the most exposure to Russia, where it earns 8% of its core profits according to Citibank.

“The disruptions are mainly caused by tighter border controls in transit countries and the forced need to change a number of established logistics routes,” the company’s Russian unit said, without naming any countries.

Renault-controlled Russian carmaker Avtovaz also said it may suspend some assembly lines at a plant in central Russia for a day on Monday, February 28, due to a continuing global shortage of components. electronics. Avtovaz also did not mention the invasion in his statement.

Finnish tire maker Nokian said it was shifting production of some key product lines from Russia to Finland and the United States to prepare for possible further sanctions after the invasion.

Managing Disruptions

Aptiv chief executive Kevin Clark said Thursday that over the past two months the U.S. auto parts maker has swapped high-volume parts out of Ukraine for low-volume products “so we were best placed to manage disruptions”.

Japanese auto supplier Sumitomo Electric Industries, which employs some 6,000 people in Ukraine to manufacture wire harnesses, said it had suspended operations at its factories there and was talking to customers about the possibility of replacing supplies other places.

Ford Motor Company has a 50% joint venture in Ford Sollers, which has three assembly plants in Russia according to Ford’s website. Ford said in a statement it was “deeply concerned” about the situation and would “manage any effect” on its business in real time.

The U.S. automaker also said it would follow all trade sanctions laws, but declined to say whether Sollers factories were affected.

While French auto parts maker Valeo said the direct impact on the business is minimal, the invasion could lead to lower industry production volumes and higher energy or material prices. raw.

For automakers, one of the concerns in the supply chain created by the conflict in Ukraine is the metals palladium, platinum and rhodium used in catalytic converters for exhaust gas cleaning.

Russia produces about 38% of the world’s palladium, excluding recycled materials, said Mark Wakefield, co-head of global automotive practice at consultancy AlixPartners.

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

Carmakers are unlikely to face an immediate shortage of palladium, Wakefield said, because there are stocks of the metal in London. There’s “a six-month journey before the palladium ends up in a car,” he said.

Aluminum prices had risen before the Ukraine conflict, Wakefield said. A cut in the supply of Russian aluminum would add to cost pressures for automakers.

Japan’s biggest steelmaker, Nippon Steel Corporation, said on Friday it would find alternatives for a raw material it buys from Russia and Ukraine in the event of a supply disruption.

Nippon Steel sources 14% of its iron ore pellets, small balls of iron ore powder used in steel production, from these countries. Officials said it had shifted its supply to Brazil and Australia and the impact should be minimal.

Farm equipment maker Deere & Company said on Friday it had closed its Ukrainian office in recent weeks as a precaution. It employs around 40 people in Ukraine.

Meanwhile, Russia said it was partially restricting access to Meta Platforms’ Facebook, accusing it of “censoring” Russian media.

Delta Air Lines, which does not operate services to Ukraine or Russia, announced Friday that it has suspended its codeshare service with Russian airline Aeroflot.

Amazon’s home security subsidiary, Ring, said it was coordinating closely with its Squad partners in Ukraine “to support the safety and well-being of the team and their families.” According to LinkedIn data, Squad employs more than 700 people, some of whom worked for research arm Ring Ukraine until about a year ago.

Amazon did not comment further on its footprint in Ukraine or Russia, or the impact of U.S. trade actions on its business, if any.

Toronto-based Kinross Gold Corporation said its Kupol underground gold mine, located in Russia’s far northeast, was operating normally. Almost all of the company’s employees in the country are Russian, and Kupol has stocked a full year’s worth of supplies on site given that it operates in a cold region, the company said.

Kinross added that he was reviewing the latest sanctions against Russia to see how they might affect operations. –

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