A testing year for the automotive supply chain 

Covid-19 arrived on the scene in China as 2020 began, bringing with it supply chain disruption that quickly spread around the world. While North America edged closer to a renegotiation of Nafta, in the form of the US-Mexico-Canada Agreement (finally enforced in July), and the European Union and the UK continued to wrangle over the direction Brexit was going to take, the coronavirus quickly became a deadly pandemic out of control. Robust growth in Brazil was undermined in April by the coronavirus and a stagnating Russian market suffered further.

What made the coronavirus problem different to previous natural and man-made catastrophes, such as the global financial crash in 2009 or the Japanese tsunami of 2011, was the fact that it was, and continues to be, a rolling global crisis with many regional phases, rather than a singular event – a perpetual war on the supply chain in effect.

Supplier shutdowns in the automotive hub of Hubei province in January soon caused inbound supply problems in China, which was initially dealing with the situation thanks to a build-up of inventory ahead of the Chinese New Year holiday. However, that in itself became a problem as travel restrictions prevented workers from returning to the factories.

As the virus spread in Asia, by February the supply problem was affecting export markets in Europe and Russia, starting with FCA, a situation exacerbated by port congestion and by the grounding of aircraft in March, which meant parts could not be expedited from alternative sources. The situation was also being made worse by uncertainty fed by a lack of accurate information.

Spreading west

By the end of the first quarter, Covid-19 was shutting factories in Italy and affecting European factories as supply chains came to halt and quarantines were imposed to contain the spread of the virus. Border restrictions hit road services and ports (though they remained operational), and companies were looking for additional storage as dwell times for vehicles and containers increased. At the same time, available logistics capacity was being dedicated to the global distribution of personal protective equipment (PPE) and medical devices, such as ventilators.

The search for capacity was also true of the finished vehicle sector, as terminal operators and port authorities worked with customers and other outbound logistics providers to deal with the sudden impact of the pandemic by finding additional storage space for vehicles stuck in the pipeline, whether it was on adjacent terminals, offsite storage facilities or on ocean vessels.

One of the main concerns for port operators as manufacturing ramped up again was how to maintain a safe working environment for employees while also meeting the demands of renewed throughput and the removal of backed-up inventory.

Carmakers, including Volkswagen Group, PSA, FCA, the Renault-Nissan-Mitsubishi (RNM) Alliance, Hyundai-Kia, Ford, BMW, Daimler, Jaguar Land Rover and Volvo Cars, all went into survival mode and looked to reduce fixed costs. As closures extended into May, the industry in Europe had not seen a shutdown like it since the World War II. 

By the second quarter of the year Covid-19 had shuttered 95% of automotive assembly plants in Europe and North America, with further shutdowns spreading globally. Factories were closing because of a combination of restrictions aimed at containing the virus, drops in vehicle demand and issues with component supply in South America, Russia, Africa, South-East Asia, Japan and South Korea. 

Restart challenges

Following the wave of global closures, then came the wave of fitful restarts, which brought with it another level of complexity and risk for the industry and the logistics supporting it. As built-up inventory was then used up, the production rebound meant logistics providers had to find capacity and labour to return their own services back to pre-crisis levels. Driver recruitment was already a problem in a number of markets and that has been exacerbated. The situation was also affected by regional imbalances in the supply of materials and parts, a lack of visibility at the tier x level.

The rebound tested the resilience and flexibility of the top tier suppliers and logistics providers. Just-in-time deliveries and reserve inventory both needed to be in place as soon as vehicle assembly was restarted. That called for strong collaboration through the supply chain and the efforts made through 2020 to gain visibility of inventory and its location, using tools both old and new, helped deal with the situation. It is a situation that is ongoing but what it has meant is the accelerated adoption of new working methods based on better communication and the use of the latest technology.

While the industry resorted to the reliable and familiar methods of using Excel spreadsheets and simply getting on the telephone at the outset, leading players also adopted more sophisticated digital tools to communicate faster and gain operational transparency of what was necessary in managing the plant shutdowns and then their fast reopening. The pandemic emergency situation made this happen faster and lessons have been learned in the digital transformation of supply chain management that will push the industry forward as a whole. 

VW was among those global carmakers to tell Automotive Logistics this year how good enhanced coordination with its suppliers and logistics partners through digital platforms was behind the safe shutdown of plants and the storage of inventory across the network, as well as being crucial to the restart of operations.

FCA also said the crisis had increased understanding within individual organisations of the value of digital transformation, particularly in logistics and transport. Predictive data management and business intelligence allowed the company to react faster and make the decisions it needed. FCA switched to ‘sprint’ meetings with internal teams and suppliers using digital communication platforms to speed up decision making on the shutdowns and restarts at the plants in its network.

That was true of the finished vehicle ports as well with ports and terminal operators furthering their adoption the latest digital technology to assist in the vehicle handling process, including the rollout of 5G networks to improve dispatch, track-and-trace and critical communications. 

Online sales and servicing

Digital tools were also important for vehicle sales and servicing, and customers have readily embraced new ways of buying vehicles as home services offered by the carmakers and their dealers have rapidly advanced this year. Digital platforms were already transforming how vehicles and aftermarket parts were supplied and sold, as a new generation of buyers demanded greater choice and convenience. That took off as the coronavirus pandemic disrupted normal servicing and buying habits.

The National Automotive Dealers Association (Nada) in the US reported back in March that one of the most common adaptations dealerships were making was the expansion pick-up and delivery for servicing, with a view to keeping both customers and employees safe.

Audi, for one, had already been providing a customer initiative called Audi At Your Door, which provided personal delivery or pick up of a vehicle for a range of services, including test driving, purchasing and maintenance. That service took off during closure of the physical dealerships, said Daniel Weissland, president of Audi of America, at a recent Reuters automotive summit.

Using digital tools to improve sales and aftersales services dealers have cut costs and the move on digitalisation has improved profitability. 

Resilience of EV sector

From a sales point of view one of the few bright spots in 2020 has been the buoyancy in the electric vehicle market. For the first half of the year in Europe the sales of electrically charged vehicles (ECVs) in Europe, which include electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs), jumped by over 40% compared to the same period in 2019, according to Ultima Media’s Business Intelligence unit, Automotive. By comparison, overall vehicle sales fell drastically by 38%.

Carmakers in Europe have managed to roll out pure electric vehicles despite the disruption of the pandemic and imports of EVs are also on the rise. That is no mean feat considering the complexity behind EV production but reducing that complexity has been crucial to remaining responsive to the market and staying cost competitive, something that has been even more critical in 2020.

Volvo Cars used September to begin the launch of it first pure electric SUV, the XC40 Recharge, from its plant in Ghent, Belgium, where it also assembling the lithium battery modules in an effort to minimise disruption to inbound supply. Volvo plans for all of its new models to have hybrid or electric options, and it aims for 50% of global sales to be fully electric vehicles by 2025. That goal means new flows, new volumes and new part numbers, and a new global supply chain for Volvo.

Volkswagen, meanwhile, is now producing both the ID.3 electric company and ID.4 electric SUV at its Zwickau plant in Germany (with the latter in production at the end of August this year). The Zwickau plant is now only making EVs and production will grow to six electric models for three of the VW Group brands (including Audi and Seat) by next year and the carmaker expects output to hit 330,000 units, making it the biggest EV factory in Europe. 

A growing number of carmakers are also looking to use China as a base for the production EVs destined for sale in Europe, including Tesla, BMW and Renault. Tesla started Model 3 exports from there to Europe in October. The BMW iX3 and the Dacia Spring electric SUV are expected next year.

Production trough

The impact of the Covid-19 pandemic means global light vehicle production for the first 10 months of the year is expected to be around 71.9m units, according to figures from Auto Forecast Solutions (AFS), a 20.5% decline on the same period in 2019 (90.5m). However, recovery forecasts are looking more positive going into 2021, with a rebound globally expected by 2023 (91.2m).

While there is also positive news that vaccines for the coronavirus are likely to begin distribution properly in January next year, the impact on the global economy is massive. Lower income and peak unemployment next year as a consequence of the pandemic could temper new vehicle sales, including for more expensive EVs, though AFS forecasts still show a tripling in the number of battery EVs produced globally over the next seven years, accounting for more than 6% of production by 2027. 

Nevertheless, no V-shaped recovery is expected, according to Daniel Harrison, Ultima Media’s business analyst. He forecasts that in the most likely scenario there will be a permanent structural downturn in volumes, compared to what was previously expected, something from which he said the industry would not fully recover.