One Ukraine Component Is Stopping Europe’s Car Factories

Bernice


Leoni Wiring Systems, in Ukraine

How can you have global economies supported both by powerful military-industrial complexes and just-in-time manufacturing that requires seamless peacetime international trade? Europe’s car companies are discovering: you can’t! All that and more in The Morning Shift for March 16, 2022.

1st Gear: Every Little Thing

Not to use the global word too often, but modern global trade and manufacturing relies on sourcing parts from all over the world and having them arrive just in time at your factory for assembly. Every little thing that gets displaced holds up the whole process.

I don’t think anyone thought all that much about where European carmakers got about a fifth of their wiring harnesses, but they’re certainly thinking about them now, as the Financial Times reports:

Inside every car sits almost three miles of electric cabling. The snaking wires carry instructions, from steering the wheels to opening the boot.

This jumble of motoring spaghetti is held together by the harness, a low-cost part that, until the invasion of Ukraine, vehicle manufacturers almost took for granted.

Both BMW and Volkswagen have both been forced to idle plants across Europe after Russia’s invasion forced Ukrainian wiring plants to shut.

[…]

The country accounts for about a fifth of Europe’s supply of harnesses, which also come from other parts of eastern Europe as well as north Africa, according to estimates from AutoAnalysis.

“The problem with wire harnesses is that they are fundamental,” said Alexandre Marian, a managing director at consultancy AlixPartners in Paris. “You cannot start assembling even an incomplete car without wire harnesses.”

The right thing to do is for Russia to stop its campaign against the people of Ukraine. What’s actually going to happen is …

2nd Gear: VW Shifting Production And Sales To U.S. And Elsewhere

Car companies that have been relying on a somewhat fragile peace for their production are looking to make their production process a little bit more robust. In the case of VW, that means moving more production out of Europe, as we hit on a bit yesterday. Automotive News elaborates:

In a surprising twist, Russia’s invasion of Ukraine will put “a substantial number” of additional new crossovers on the lots of U.S. Volkswagen dealerships in coming months.

Speaking Tuesday during Volkswagen Group’s annual press conference, CEO Herbert Diess said the German automaker would shift more production to North America and China, at least temporarily, as a result of the war.

That’s expected to mean increased output from VW-brand plants in Chattanooga and Puebla, Mexico, as well as the Audi plant in San Jose Chiapa, Mexico, all of which assemble crossovers sold primarily in the U.S. Chattanooga builds the three-row VW Atlas and two-row Atlas Cross Sport and is currently building non-saleable pilot versions of the ID4 battery-electric crossover, while Puebla assembles the VW Tiguan and Taos. The Audi plant produces the popular Q5.

VW has been having a normal one with regards to Ukraine, with this somewhat cryptic announcement:

For more on the subject, please enjoy this article from the Financial Times in which VW imagines … cutting off Russia is bad, but what if we cut off China?

It took just one week after Vladimir Putin ordered an invasion of Ukraine for Volkswagen, BMW and Mercedes-Benz to suspend production and sales in Russia. Germany’s carmaking trio, which usually avoid commenting on international politics, each issued carefully worded criticisms of the war.

Their decisions were not excessively painful. Together, the three carmakers sold fewer than 300,000 vehicles in Russia last year, a small fraction of the 13mn they delivered worldwide.

Yet there was more than a moment’s hesitation in the boardrooms of the big automakers. Withdrawing from Russia, says an adviser to one of the German carmakers, was one thing, but what if, in a similar scenario, there was pressure to withdraw from China, which accounts for upwards of a third of sales at all three companies?

“That,” the person said, “would be close to an existential crisis.”

3rd Gear: BMW Notes It Would Be Making More Money If Not For Russian Invasion Of Ukraine

BMW has given the world an update on its financials, and it would be better if not for Russia’s invasion, as Bloomberg reports:

BMW AG said operating returns for its automotive business will remain robust this year, even as the war in Ukraine and a global semiconductor shortage weigh on production.

The company on Wednesday lowered its estimate for automaking returns to between 7% and 9% for 2022, noting that the target range would have been 8% to 10% were it not for Russia’s invasion. BMW expects deliveries to remain flat at about 2.5 million.

Shares were up 3.2% at 1:09 p.m. in Frankfurt.

While many European manufacturers have expressed uncertainty about the impact of the war in Ukraine, BMW is among the first to quantify the impact on its business. 

4th Gear: Russia At War Is Also Hitting … Japanese Used-Car Auctions

We’ve written before about Russia’s unbelievably huge JDM imports, which are so intense that far eastern parts of Russia basically drive on the wrong side of the road.

These imports are drying up as Russia goes to war, and that is hitting Japan hard, as the Financial Times reports:

Since late February, the abrupt slowdown of shipments to Russia and, with that, the evaporation of the single biggest source of demand for used Japanese cars has caused everyone to rip up the old calculations.

The critical figure that looms over Japan’s second-hand car market is the monthly average price settled at the country’s largest manager of auctions, Used car System Solutions (USS). For the first time since comparable records began more than 20 years ago, the average price in February edged over the Y1m mark ($8,500) — a milestone that still seemed remote a year ago when the average was 20 per cent lower. But for how long will it hold?

[…]

In common with other developed markets, the pandemic-related shortages of semiconductors have simultaneously squeezed the supply of new Japanese cars, extending waiting times and causing more domestic buyers to turn to the second-hand market. This, combined with a phase of multiyear weakness in the yen which buoyed global demand for used Japanese cars, produced the surge towards the Y1mn average.

This is all to say that it’s maybe not the best time to go looking for a used early ‘90s X80 Toyota Cresta, even if you’re the successful co-author of a daily news roundup on the most popular car culture website on the internet.

5th Gear: Meanwhile Tesla Closes Shanghai Plant For Covid

Covid is hitting Shanghai hard right now. Traffic congestion is down by more than a third, even. Even Tesla, notoriously difficult to get into any kind of Covid lockdown, is shutting down its plant there, as Bloomberg reports:

Tesla Inc. is suspending production at its Shanghai factory for two days as China tightens restrictions to contain the latest Covid outbreak, according to people familiar with the matter.

Production at the plant will be halted on Wednesday and Thursday, the people said, asking not to be identified because they’re not authorized to speak publicly. Covid restrictions in the city have prevented many workers from commuting to the factory, one of the people said.

It’s not like Tesla wanted to shut down, it’s just that nobody could get to the factory to work. Sounds about right.

Reverse: Racing Legend Mickey Thompson Murdered

Mickey Thompson and his wife were killed on this day in 1988, and the murderer remained free until 2007, per Reuters:

More than 18 years after car racing legend Mickey Thompson and his wife were shot to death outside their Los Angeles area home, a former business partner was convicted on Thursday of their murders.

Michael Goodwin, who had long been suspected of orchestrating the March, 1988 killings of Mickey and Trudy Thompson over a business dispute, was found guilty of two counts of murder after a six-week trial.

Goodwin, 61, now faces life in prison without the possibility of parole.

“It was Goodwin the whole time,” Thompson’s son, Danny, said after the verdict. “I always thought that. I think that now. And obviously the jury thought that and I thank them.”

Neutral: How Are You?

I have been staring at this bike and thinking about putting a fresh red coat of paint on my old project bike hell Fuji.



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