How Supply-Chain Turmoil is Remaking the Car Industry

All it takes is one domino to collapse it all. During the COVID-19 pandemic, that domino came in the form of global supply chain shortages.

Nowhere was this more apparent than in the automotive industry. It began with automotive supply chain news about a lack of chips for new vehicles. Then it snowballed into an issue with the entire global supply chain automotive industry.

As gloomy as this situation may look, there may be an upside. The supply chain turmoil may be remaking the auto industry into something more resilient.

Keep reading as we discuss how the automotive industry is bouncing back.

The Automotive Supply Chain News Is Promoting Vertical Integration
Vertical integration is when a company internalizes every aspect of production. That means, for example, making tires in the factory rather than buying them in bulk from other companies. And in a world dominated by outsourcing, this could prove to be a massive change.

Vertical integration has a lot of growing pains. It means expanding factories, expanding departments, and adding a lot more calculation to the mix.

But the end result is companies that are more resilient. Supply chain shortages taught the automotive industry that they couldn’t rely on foreign suppliers. The car supply chain in 2022 and beyond may be a more centralized one.

The Automotive Industry Is Sourcing Their Materials Directly
As a consequence of vertical integration, automotive manufacturers are buying raw materials for themselves. To give an example, Elon Musk is buying cobalt and lithium direct from mining companies. This allows him to make his own batteries in the factory.

Other automakers are taking a page out of his book. The supply-chain industry may look very different, as automakers become the primary buyers of raw materials.

The result may mean that the global supply chain automotive industry may reduce to an in-country one. That means keeping their parts close to home, leading to a very low risk of supply chain disruption.

New Car Supply Chain Issues Are Improving Innovation
Now that vehicle makers are looking to cut ties with outsourcing companies, that opens a new door: innovation. Rather than relying on the same part supplied to a dozen other auto manufacturers, they can make their own.

This opens the door for never-before-seen innovation. If you have to build your design around a pre-fabricated part, that limits your vision and forces you to make concessions. But when you can decide how to build the part, then the door is open to your imagination.

This allows automakers to cut down on costs since they create the parts exactly to their own specifications. We may see more auto designs that break away from the mold in the coming years.

Find a Vehicle Today
Automotive supply chain news during the pandemic was cause for panic, but now it looks like the industry will adapt. Our future automotive industry might have better vertical integration, have more robust supply chains, and promote untold innovation. Of course, the best we can do is wait and see.

New car supply chain issues have made it difficult to get a vehicle for a reasonable price. That’s where Red McCombs is ready to help. Check out our selection of new vehicles and drop by one of our centers for a visit.

Posted in Car Industry News | No Comments »