Car shortage hampers auto dealers
More than two years after the world first locked down for Covid, supply-chain disruptions are still impacting the global auto industry.
Among the affected businesses are Pembroke’s Auto Solutions and the Hamilton dealership Bermuda Motors.
The biggest issue is a global shortage of micro chips. In fact, US president Joe Biden just signed into law more than $52 billion in “incentives” designed to lure chipmakers to the United States.
When the pandemic hit, employers worldwide scrambled to supply their work-from-home staff members with computers, phones and printers — and demand by electronics manufacturers for micro chips surged.
Glen Smith, managing director of Auto Solutions, said: “That put pressure on the micro chip industry because every computer has lots of micro chips, phones have them too — and cars do, too.
“The pressure started from there because the world was not geared up to have that many micro chips and components and infrastructure for shipping during that time.”
The shortage persists to this day; more than two million vehicles worldwide have been cancelled from automaker production schedules so far this year because of the micro chip shortage, according to US-based AutoForecast Solutions.
Aside from a micro chip shortage, the auto industry has faced myriad other issues, including:
• Covid-related factory shutdowns in Asia, delaying the manufacture and supply of vehicles;
• Airlines cut back flights so auto parts could not ship as cargo;
• Russia’s invasion of Ukraine, which has prompted factories to close and disrupted the supply chain for micro chips and other vehicle components;
• A snowstorm caused power outages in Texas and impacted production at micro chip factories in the state;
• A global shortage of shipping containers;
• A shortage of truckers to haul the containers that are available;
• Container ships sitting offshore with goods on-board because there is no means of moving the goods;
• Increased freight rates.
William Madeiros, the managing director at Bermuda Motors, said: “Honestly, if you had tried to create this scenario in your mind, you couldn’t have done it — all of these things happening suddenly at the same time.”
Sebastien Cornet, general sales manager at Bermuda Motors, said the unpredictability of the current situation, and rising costs, are his main concerns.
He said the dealership ideally has three months of stock at all times, and available to sell.
When Covid first hit, the dealership stopped ordering cars at one point.
But he added: “Five weeks later, we were allowed to come back to work and right away people wanted a car. So we sold all our vehicles — people wanted to live.
“It takes five to six months to receive new stock, so we have never been able to get our stock of three months.”
Today, he said, cars are sold before they even land on the island.
Mr Cornet said: “So, we never really catch up.”
Bermuda Motors recently received a shipment of 91 vehicles; some customers had waited up to a year for their car.
Mr Madeiros said: “If you need a car right now — your car dies and you walk in and want to buy a brand new car — we have cars, but they are sold due to the pipeline.”
Auto Solutions had one advantage when demand surged after lockdown. Vehicles earmarked for the dealership are sent first to New Jersey, and then arrive on the Oleander container ship, which continued to operate, while the regular car ship from Asia arrived less regularly.
Mr Smith said: “We brought them down as we needed them.”
As manufacturers began to ration the distribution of cars to each dealer, Auto Solutions hit on a strategy.
Harry Andrews, sales and operations manager, said: “We would order ten cars, but only get five. So we made a decision as a management group to order extra cars realising it would get cut. So we’d order 20, with the expectation to get ten.
“That was a pretty risky business move, but it paid off.”
He said the numbers vary by model mix, but the dealership’s overall new car inventory is down about 30 per cent on normal times.
Mr Andrews said orders are still being cut by automakers and so, while some vehicles are presold by the dealership, the expected arrival date can be affected by a reduction in the number of cars shipped.
He said: “It’s a pretty big challenge to get manufacturers to provide the product we require.”
Mr Andrews added that automakers are asking him now for forecasts about how many vehicles will be required in the next two years so that they can figure out what the market will look like for the components required to build cars.
The availability of parts, the lead times for parts shipments and freight rates are also issues.
At Bermuda Motors, parts manager Damon Haywood and assistant parts manager Dennis Burchall scour the world for parts, listing Korea, Japan, Australia, Mexico, the US and Britain as options they have pursued.
Mr Haywood said some plants manufacture both vehicles and parts, so a shutdown has a double impact.
He said: “When they stop, everything comes to a crashing halt. We have to become very creative and go to wherever we can find a part. Dennis is excellent with that, going where the part is to make clients happy.”
Mr Madeiros said: “We are unable to give a client a delivery time on a part. We have tried sourcing a part, but we couldn’t find it because it hasn’t been made yet.”
He added: “We thank our clients for their patience every single day because the global ‘we’ doesn’t have the part.”
The Bermuda Motors boss said the unavailability of certain parts can impact a vehicle owner’s attempt to pass a car through inspection at the Transport Control Department.
He said: “TCD, to give them their due, have been very fair and very sensible. As long as the part that is lacking is not a safety item, it is excused so long as we vouch for the fact it’s on order.”
Bill McNiven, parts manager at Auto Solutions, said: “The biggest challenge concerns the electric control unit, the brain of the car. We don’t need a lot of them, but for one model we needed to put five or six cars off the road. We waited six months to get the first one here.”
He added: “In Japan, our orders are small per brand, so manufacturers wait until they have enough volume — it can take three or four months of small orders combined until there is a shipment big enough for them to make a booking.”
Staff at both dealerships said a shipping container of oil, which formerly cost less than $10,000 to ship, for a time carried a price tag of more than $20,000.
Mr McNiven said: “The price has come down to $12,000 now, so we are seeing some relief.”
The unpredictability of the global auto market was underlined by an unexpected arrival of vehicles in Bermuda.
Mr Madeiros said: “We got some inventory earmarked for Ukraine; instead, it came to us. That is the global environment we are operating in every day.
“Who would have thought that we would receive some vehicles earmarked for Ukraine?”
Mr Smith said countries including the US, China, Taiwan and South Korea are ramping up micro chip production.
But he added: “So, it’s heading in the right direction. But it’s not done at the flick of a light switch — these things take for ever.”
He said there might be some improvement by the end of this year, but a full resolution will take longer.
Mr Smith said: “By the end of 2023 is the best-case scenario that we’ll get back to some kind of normalcy. Worst case, it will be 2024.”