The aftermath of the pandemic has meant that automotive supply chains face a number of challenges. These include shortages in both labor and raw materials, as well as increased costs and reduced output due to lack of demand.
According to a study by Cognizant Technology Solutions (CTS), the automotive industry suffered losses of $100 billion amid the pandemic. The report states that these losses were incurred because of disruptions in supply chains, as well as lost revenue due to declining sales and market share loss.
In this post-pandemic environment, OEMs are facing several challenges:
- Increased demand for parts and services (e.g., replacement batteries).
- Shortages of parts and services due to lack of availability or increased demand for replacement batteries.
- Increased freight costs due to increased fuel prices and demand for transportation resources (e.g., trucks)
- Increased labor costs due to higher wages and overtime pay, along with new hiring requirements by employers who must replace workers who have died or become ill from the pandemic.
The automotive industry is crucial for the economy, accounting for around 10 percent of GDP in developed countries. The sector has been affected by a range of factors including reduced consumer confidence and spending in some markets, such as Europe and Japan, where sales have declined due to the economic downturn.
In addition, many dealerships have been closed down or are operating at below capacity following reductions in new car registrations across most European countries over recent years. This has led to an increase in used car prices which has impacted new vehicle sales.
The automotive sector is also facing a shortage of skilled workers following the pandemic with many employees having died or left the industry during this period.
This has led to higher costs for companies operating in this area resulting from increased wage demands from employees who are now more confident about job security than they were before the pandemic began.
Final Words
While the pandemic has been contained and is no longer an issue, its impact will be felt for years to come.
The automotive supply chain has been severely disrupted by the pandemic with many OEMs and Tier 1s having to halt production.
In addition, as a result of a reduction in demand due to the pandemic, many suppliers are facing significant inventory issues or even bankruptcy.
Author bioMichael Hollis is a Detroit native who has helped hundreds of business owners with their automotive merchant account solutions. He’s experimented with various occupations: computer programming, dog training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.