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Russia-Ukraine war could cut auto production by millions of vehicles

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Ford Transit’s 111,111th car was manufactured in Yelabuga (Russian Republic of Tatarstan).

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Experts believe that Russia’s invasion in Ukraine will reduce the global production of cars and trucks to a few million units.

As companies cease operations, local Russian production should feel the most impact in the near term. However, officials warn that the potential for ripple effects in the auto industry will increase if the conflict continues.

“There’s no question. It is going to ripple. It will depend on the length of this,” stated Jeff Schuster, LMC Automotive president for global forecasting. The trade and sanctions play an important role.

The invasionThis is creating supply problems for components such as wire harnesses which are part of a vehicle’s wiring system. This war is likely to get worse. existing supply limitationspart such as chip-maker semiconductors, catalytic converters or other parts that use gases and materials from the region. It is possible that the crisis will worsen rising inflationThese will drive already record-high car prices higher.

Schuster explained that “this does have global implications as it adds to inflationary and pricing pressure and finally deals another blow to consumers.”

The most significant impact on U.S. customers is the rise in gas prices. A gallon of gasoline is the national average hit $4.009 on Sunday, according to AAA — the highest since July 2008, not adjusted for inflation.

Automobile production

Given the current state of affairs, early estimates for vehicle output reductions due to conflict are uncertain.

Schuster from LMC stated that this could have a significant impact of millions of units in production by 2022. According to him, his company has adjusted its production forecasts in order to decrease European production by 700,000 units.

European car markets will be more affected than other American and European markets. Audi and Mercedes-Benz, two European carmakers, have stated that they intend to. cut production output at plants due to parts disruptions out of Ukraine — specifically, wire harnesses.

UBS analyst Patrick Hummel wrote Monday, “Wire Harnesses are currently the most critical near term bottleneck,” and stated that it had caused significant production interruptions for all German OEMs. Wire harnesses can cause significant disruptions to European production, although this is unlikely in the next few days. However, European production will not be affected by these downtimes.

AutoForecast Solutions predicts that vehicle production in Russia and Ukraine will fall to 800,000.

Research firm IHS Markit has a “pessimistic outlook,” stating that the world will see 3.5 million less vehicles this year due to shortages in semiconductor chips. Russia and Ukraine, which are key sources for neon gas and palladium used in producing semiconductor chips, are crucial.

Tim Urquhart is an IHS principal analyst for European automotive. He noted that the market situation was still fluid. IHS projected global sales of 82.4 millions vehicles by 2022 in December. That’s an increase of 3.7% from the year before.

Long-term Impact

Russia’s automobile operations are at serious risk due to growing sanctions and the withdrawal or suspension of operations by Russian companies.

Experts predict that automakers, and others in the industry will have to balance the risk of having to resume operations with the possibility for increased earnings.

Matt Gorman is a Republican strategist and corporate communication advisor. “It’s important for companies to give a reason why they are going back in.” They can’t go back in when they’re in the exact same place and Russians continue to shell Ukrainian civilians in two or three months.

Automakers might have an easier choice than others. Russia is home to only a handful of automakers. France’s Renault Group owns a majority stake in Russian automaker AvtoVAZ. South Korea is next at 39.5%. Hyundai GroupAt 27.2%

German automaker VolkswagenResearch firm IHS Markit estimates that Japan accounts for 12.2% of its auto production. Japan’s Toyota MotorIt makes up 5.5%. The rest of the automakers are in the single digits.

“I don’t think any sensible business person, any CEO … would be looking to go back into it anytime soon,” IHS’ Urquhart said. “It’s not a high priority for me to return.”

Joe McCabe, CEO of AutoForecast Solutions, agrees. This is especially true considering the low operating earnings for most automakers across the country.

He stated that for a Western company, it would be wise to invest in Russia again after the event.

In the three-year period, Russian vehicles sold between 1.6 and 1.75 millions units annually. This is one-tenth of U.S. vehicle market’s annual sales and will account for 2% global vehicle sales by 2021.

—CNBC’s Michael Bloom contributed to this report.

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