111 The 111th Ford Transit produced at the Ford Sollers car plant in Yelabuga, the Republic of Tatarstan.
Egor Aleev | TASS | Getty Images
Russia’s invasion of Ukraine could cut global production of new cars and trucks by millions this year, experts say.
In the short term, local Russian production is expected to have the biggest impact as companies suspend operations. But the longer the war goes on, the higher the risk of ripple effects in the auto industry, officials say.
“There is no doubt. It will be undulating. It’s just that it will really depend on how long it lasts,” said Jeff Shuster, president of global forecasting and Americas at LMC Automotive. “Sanctions and the impact on trade play a big role in this.”
The invasion is already creating new supply problems for parts such as wiring harnesses that act as a car’s electrical wiring system. The war is also expected to further exacerbate existing restrictions on the supply of parts such as catalytic converters and semiconductor chips that use materials and gases from the region. The crisis could exacerbate rising inflation and further push up already record high car prices.
“This has global implications in terms of increased inflationary pressures, price pressures and ultimately another blow to the consumer,” Schuster said.
For US consumers, the most immediate impact will be higher gas prices. The national average per gallon of gasoline reached $4,009 on Sunday, the highest since July 2008, unadjusted for inflation, according to AAA data.
Automobile manufacturing
Early predictions of a decline in vehicle production as a result of the conflict vary greatly given the volatility of the situation.
Schuster said the impact could be millions of units in 2022. His firm has already adjusted its forecast, cutting European production by 700,000 units, he said.
The European automotive market will feel the impact much faster than the US and other markets. European automakers such as Audi and Mercedes-Benz have said they plan to cut production at factories due to interruptions in the supply of parts from Ukraine, in particular wiring harnesses.
“Wiring harnesses are, in our view, the most important short-term bottleneck that is already causing significant production disruption across all German OEMs,” UBS analyst Patrick Hummel said in a note to investors on Monday. “We think significant downtime is likely over the next few weeks, but is limited to European production as wiring harnesses are typically sourced regionally.”
AutoForecast Solutions expects vehicle production in Russia and Ukraine to halve this year as a result of the conflict and fall to around 800,000 units.
An early “pessimistic outlook” from market research firm IHS Markit suggests that the global impact will be around 3.5 million fewer vehicles this year due to semiconductor chip restrictions. Russia and Ukraine are important sources of gaseous neon and palladium, which are used to manufacture semiconductor chips.
However, Tim Urquhart, chief European automotive analyst at IHS, said the situation remains volatile. In December, IHS forecast global sales of 82.4 million vehicles in 2022, up 3.7% year-over-year.
Long term impact
As sanctions tighten and companies wind down or suspend operations in Russia, the country’s auto industry faces long-term risk.
Automakers and other industries will have to weigh the possible backlash against the reopening against the potential profit, experts say.
“The key is for companies to provide a concrete rationale for why they are coming back,” said Matt Gorman, corporate communications adviser and Republican strategist. “They won’t be able to sneak back if we are still in the same place and if the Russians are still firing on Ukrainian civilians in a month or two months.”
For automakers, the choice may be easier than for others. Only a few automakers have notable operations in Russia. France’s Renault Group, which owns a majority stake in Russian automaker AvtoVAZ, accounts for 39.5% of the country’s car production, followed by South Korea’s Hyundai Group with 27.2%.
German automaker Volkswagen accounts for 12.2% of the country’s car production, according to research firm IHS Markit. Japanese Toyota Motor – 5.5%. Other automakers follow in low single digits.
“I don’t think any sane business person, any CEO … would want to go back to this anytime soon,” IHS’ Urquhart said. “I just think going back is a very low priority.”
AutoForecast Solutions CEO Joe McCabe agrees, especially given the relatively low earnings and operations of many automakers in the country.
“For a Western company reinvesting in Russia after that, I think that after they leave, this will be the first of many steps that will be a long-term exit strategy from Russia,” he said.
Over the past three years, the Russian automotive market has sold from 1.6 million to 1.75 million vehicles a year. This is one-tenth the size of the US market last year and accounts for about 2% of global car sales in 2021.
—Michael Bloom of CNBC contributed to this report.