Russian Invasion Sparks Another Supply-Chain Crisis For Auto Industry

World Market Exposed to Russia

Some of the auto industry’s most iconic brand names come from Europe, including sports car brand Porsche (POAHY) and its subsidiary Volkswagen (VWAPY). Analysts say automakers across the continent are facing significant obstacles following Russia’s invasion of Ukraine, including halts in production and closed-down factories.

European automakers are far from the only ones affected. Toyota (TM) temporarily shuttered its factory in St. Petersburg, while Ford (F) put a joint venture with a Russian company on hold and temporarily suspended sales within the country. South Korea’s Hyundai (HYMTF) — one of Russia’s largest car makers — closed its St. Petersburg plant with hopes to reopen soon.

Industry’s Third Crisis in Three Years

The auto industry stands apart in some ways as the armed conflict marks its third distinct crisis during the pandemic. As COVID-19 spread in 2020, widespread disruptions occurred within the global supply chain. Then the global chip shortage crippled last year’s production — especially with the industry-wide push for electric cars.

Russia’s invasion threatens to harm automakers in a vast number of ways, including the shuttering of factories in Russia and halting sales there, depressing production and revenue. Russia also produces a key metal needed for catalytic converters, and economic sanctions make deliveries difficult. Plus, Ukraine is a crucial supplier of auto parts.

How It Affects the Car Market

Leaving aside the impact on the broader economy — which could be significant, as the auto industry is one of the West’s largest industrial employers — car prices are likely to go even higher. New cars have been in short supply for months and used car prices are already up near record levels. Now, analysts say the invasion of Ukraine could cause global vehicle production to fall by 2% this year.

With diminished supply and already high prices, car buyers could be facing extreme sticker shock over the rest of 2022. Many waiting to buy a new car may not see prices fall anytime soon.

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