COVID-19 Had a Strong Impact on the Automotive Market

The epicenter of the COVID-19 pandemic is an area in China that quickly became extremely well known and popular for the wrong reasons.

The area of Wuhan, China isn’t a science hub or filled with outdoor markets, it’s a worldwide manufacturing hub. The fact this virus started in this area impacted every industry and the automotive market was one of the hardest-hit industries in the world.

The JIT Process Was Interrupted

Many automakers make vehicles on a Just In Time (JIT) basis. The idea is to have an uninterrupted supply of the materials and components needed to build vehicles. This process has been meticulously perfected over many decades with suppliers and automakers working in concert. This process is a delicate one and only one missing part could shut down the production line and cause a ripple effect to take place in the industry.

More than a Ripple

The impact that COVID-19 has had and continues to have on the automotive industry was more than a ripple. This might as well have been a tsunami the way it hit this industry. With a global shutdown, automakers scrambled to cut losses by canceling orders to many of their parts suppliers. We’ve heard about the semiconductor shortage, that still impacts this industry, but there were many other troubles in the automotive world.

Raw Material Prices Soared

As automotive suppliers cut their supplies of materials during the global shutdown, they didn’t have the materials needed when orders resumed. This caused the prices of these materials to skyrocket, which has now increased the price of new vehicles at dealerships. The shortage of materials also increased lead times which makes it difficult for automakers to keep up with the demands of dealerships and customers looking for new vehicles to buy.

Contract Relationships Need More Details

The success of the JIT process of building cars has caused many of the legal teams of both automakers and suppliers to get lazy in the way contracts are drafted. Because of the success and continued relationships that haven’t been interrupted for decades, the Force Majeure language of contracts was buried in the bottom Miscellaneous section and nothing more than a copied and pasted afterthought.

With the challenges of COVID-19, many companies took a strong look at this section to see if they could put some of the costs of the risks taken with their partners on other companies. Unfortunately, because this area of most contracts wasn’t well thought out, many claims have fallen by the wayside. A renewed focus on this area of future contracts is already in place for many automakers and their suppliers to avoid costly risks in the future.

The Finger Pointing for Warranty Claims

Rising costs of materials, parts, supplies, and equipment coupled with the delays associated with the pandemic shutdown have caused serious problems. We’re seeing many automakers pointing the proverbial finger at suppliers when it comes to warranty claims. Of course, if a supplied component doesn’t operate as advertised, this makes perfect sense, but some of these claims are the fault of the automaker. This could cause warranties to be more costly and translate to shorter warranties and higher prices in the future.

Autonomous Technology Delayed

This one might not be a true impact of COVID-19, but that does depend on how you feel about autonomous vehicles and when you think they will be widely used and accepted. Even though most of us probably don’t expect to see driverless cars replace our vehicles in the next few decades, technology has been in development for a long time. This technology has been delayed with the shutdown and the scramble to catch back up, which hasn’t happened yet.

Process Reviews Highlighted

As happens with anything that upsets the proverbial apple cart, many automakers and suppliers are reviewing their supply chain processes to figure out where the challenges took place and how they could avoid such a problem in the past. This is a normal part of assessing failures, even if those failures truly had nothing to do with the process.

Will the Automotive Industry Get Back on Track?

The COVID-19 pandemic has already had a long-lasting impact on the automotive industry. It may take a couple of years to see the supply chain restored and the JIT process back to normal. There’s no telling if the prices of materials will come back to normal, but you can expect the technology and manufacturing to return to normal sometime in the near future.