How the Ukraine Conflict is Affecting the US Auto Industry
Russia’s invasion of Ukraine has disrupted the entire world. This will be a definitive time in the history of the modern world. While we all have a social responsibility to follow this conflict and assist in our own ways, we also have businesses to run. And one burning question is: how will this affect the automotive industry.
Raw Materials
Ukraine is the third largest producer of aluminum and nickel in the world, both of which are used in making EV batteries. Not only that, it provides 70% of the world's supply of neon gas, which is used in making semiconductor chips, and the country supplies palladium, platinum and rhodium used in exhaust-scrubbing catalytic converters.
Russia provides 40% of the world’s supply of palladium used in making catalytic converters, and the U.S. manufacturers get most of it from them. It’s also a big producer of nickel, which is used in the production of both EVs and ICEs.
The Sanctions
The U.S. government seeks to prevent Russia’s access to global exports, which could lead companies to alter manufacturing plans or seek alternative supply lines. Automakers all over the world have stopped shipments to Russia while they await more details on how this is going to pan out. Everything will have to shift around the sanctions against Russia, and it is unknown what that will look like yet. Some affected brands so far are VW, Ford, Volvo, Stellantis, Mitsubishi, GM, and more.
If Ukrainian exports are shut down, US automakers are preparing to find alternative materials to replace palladium. Without it ICE production would be halted.
Many are awaiting China’s response to the sanctions on Russia to see what happens next. As of now, they are maintaining business as usual, but Tuesday’s announcement that the US is no longer accepting Russian oil imports could spark China to retaliate by withholding other materials essential to vehicle production in the US.
What does this mean?
The sanctions paired with other export interferences are only going to further irritate the supply chain. Being that chips are already hard to come by and car prices are already very high, it is expected that prices are only going to go up.
Unfortunately, chips likely won’t be the only shortage we have to worry about. Aluminum jumped as much as 4.8 percent to $3,449 a ton on the London Metal Exchange, surpassing a previous record set in 2008, while nickel surged to the highest since 2011.
It is likely production overall will be stunted, creating an even bigger headache for dealers and consumers. Even if materials remain available, the price of them will increase. Tha means car prices will go up AGAIN, inflating the car market and economy as a whole even further.
Of course as the stock market has nose-dived consumer confidence has also decreased. Considering that along with the promise of increased interest rates from the Fed, we can assume that vehicle sales will likely decrease, especially as gasoline prices rise.
The problems the U.S. auto industry was already having will be exasperated. Until things settle down (or not), it is best to brace yourself and continue to roll with the punches, as dealers always have.
If you’re over the fluctuating market and ready to exit the industry or offload some financial burdens, please reach out to us to start the conversation about selling your dealership or retiring.
