Supply chain issues and chip shortage
A disruption in the supply of computer chips used to build new vehicles has cascaded into slowing supplies of new cars and, in turn, increasing demand for used cars.
Pittsburgh dealers — like those across the country — have been dodging and weaving for most of the pandemic, trying to stay in business until things sort out again, even as car manufacturers work to speed up supply with everything from simpler car designs to tinkering with their supply chains.
For customers, dealers say navigating this market could be tough, too. The car industry has faced ongoing obstacles since the onset of the coronavirus pandemic that closed many plants. Initially, manufacturers did not anticipate the high demand for cars once factories opened up and could not produce enough.
Computer chip technology is used in newer vehicles to perform vital functions like reading the amount of pressure on the gas pedal, navigation displays, backup cameras, anti-lock and emergency brakes and more. When chips are not available, finished cars sit idle.
“The chips are needed to do the processing component,” Mr. Drury said. “It’s so crucial to many parts, and there’s different ones for different functions.”
Because 80% of chips are produced outside the U.S., the pandemic hit the supply chain hard. In addition, experts say weather and environmental issues have also been factors. Chips made in Taiwan, for example, were affected due to a recent drought. In Texas, chip manufacturing was affected by this year’s winter storm. A fire at a chip factory in Naka, Japan, in March added more stress to the industry.
It may not help that automotive chips are low on the priority list, since cell phones and computers also rely on chips. Because of the relative simplicity of car chips compared to computer or phone chips, there are lower profit margins on car chips.
The shortage has been such a problem that manufacturers are starting to remove certain features, like switching digital displays back to physical dials, in order to reconfigure cars to use fewer chips and, hopefully, get the vehicles out of factories.
The people on the frontline of the industry — in the new car showrooms and the used car lots — are watching to see when things might turn around. There are factories being built in the United States to produce chips, which could take a few years to get rolling.
Hyundai Motor Group is in talks with South Korean chip companies to help it reduce reliance on foreign supplies amid a global shortage that has halted assembly lines at automakers around the world, four people familiar with the matter told Reuters.
Hyundai officials have met with local “fabless” firms – which design chips but outsource manufacturing to the likes of TSMC and Samsung Electronics Co Ltd – as it explores long-term strategies to better diversify its supply chain, according to two people at local fabless firms who met with Hyundai.
Ford Motor Company is working on an automotive supply chain initiative focused on finding drop-in applications for carbon-negative PET plastic produced from sustainable wood residues. PET plastic helps make cars lighter and more fuel efficient, and often comprise a large percentage of a vehicle’s mass. Ford is working with Origin Materials — a company that turns sustainable wood residues into carbon-negative materials that reduce the need for fossil resources — to produce products including bumpers, paint pigment, door panels, tire filler, head rests, seat cushions, arm rests and more.
Origin says its technology platform is expected to provide “stable pricing largely decoupled from the petroleum supply chain,” which is exposed to more volatility than supply chains based on sustainable wood residues.
The impact on the car sales market is seen in both supply and prices. On new cars, people are paying MSRP or even above, which is unheard of for normal, everyday vehicles.
According to data from Edmunds, a car appraisal and search service, the dollar amount in discounts had been following the paths of average MSRP and new transaction prices, but took a steep decline beginning January. As of May, the average discount amount was only $798; in the past, it had been upward of $2,000.
Pure-play foundries see the automotive segment play an increasingly important role in their revenue, according to market sources.
Foundries asks for about 15% higher quotes for automotive ICs than chips for use in consumer electronics and other mass-market applications, because automotive applications have high requirements due to safety and quality concerns, the sources said.
Car vendors have also moved to directly request foundry capacity support, a job they used to have their suppliers handle, the sources said.
Amid the current shortage in foundry capacity, IDMs and fabless firms are more willing to pay more to secure more capacity for automotive chips, the sources noted. Despite smartphones and other mass-market applications still playing a main role in foundries’ revenue, the foundries may see sales generated from the auto sector grow substantially over the next two to three years.
READ MORE HERE: post-gazette.com
Supply is king at this moment in time
While most in the lubricants industry are well aware of the unprecedented number of base oil, additive and lubricant price increases seen so far in 2021, in the eyes of many distributors, we are also in a period of an unparalleled shortage in finished lubricant supply. Though many distributors feel they now have a unique window of opportunity to significantly grow their business, there is a high level of frustration as their ability to do so is stymied by supply shortages.
When orders are placed for lubricants, distributors are told that supply is based on availability; sales controls are in effect and supply is limited; or they hear other reasons why product may not be available when needed. Some find that when an order is “postponed”, it often means it will be cancelled.
For large lubricant distributors, supply is so tight that they cannot get enough to meet the needs of their existing customers, let alone to take on new business. Adding to this, some of the larger distributors now have smaller distributors calling them to buy products because they can’t get it from the majors they do business with. Although sympathetic, even the larger distributors who are strongly aligned say they often can’t help even those they have relationships with since they too are concerned that they themselves will not have enough supply to serve demand from their existing customers.
Distributors are not the only ones feeling the pinch. New car dealers are reportedly struggling with limited supply of genuine oils, and retailers are increasingly out of stock on certain types and grades of motor oils, particularly HDEO.
The tightening of supply began with a cascade of events that started with the pandemic. The demand for lubricants dropped precipitously during the first half of 2020, and base oil and additive producers pulled back on production accordingly. In addition to base oil and additive manufacturers cutting back on production, suppliers of the chemical intermediates used to make lubricant additives also cut back on production in 2020. With lower demand for fuels during the pandemic, refineries cut back on fuel production and this in turn reduced the supply of the vacuum gas oil used as feed for base oil manufacturing. This was compounded by extended turnarounds for maintenance with less pressure on extended downtime.
Where the spigots of base oil and the chemical intermediates started to open up in the beginning of 2021, the base oil and additive supply chain took another hit when the Texas Gulf Coast experienced an extreme ice storm with record low temperatures in February. The storm severely damaged many facilities and sidelined most of the region’s fuel and petrochemical processing capacity. This too had a significant negative impact on the components required to manufacture additives and blend lubricants. It cut deep into the supply of the resins used for bottles, pails, totes, drums, caps and other lubricant packages.
While the supply of base oils and lubricant additives in particular were compromised, the next event in the cascade of supply challenges occurred when US economic activity rapidly bounced back from the sharp decline during the pandemic. The rise in economic activity quickly outpaced any hope that the supply of lubricants would keep pace with demand as the US economy improved in what looks like will be a V-shaped recovery.
Adding to these challenges, transportation issues are also disrupting supply lines. Not only are additives in short supply, there are typically lengthy delays in receiving product due to the truck driver shortage. The industry is experiencing major delays and nearly a doubling of cost to bring raw materials in from other countries by container vessels.
When taken together, these series of events resulted in an extraordinarily tight supply of additives. This is particularly the case for PCMO, HDEO, and driveline lubricants, including THF. In addition, base oil supply is tight and bright stock and Group III are particularly challenging to source.
In addition to hobbling supply of lubricants from the majors, distributors say they are also challenged to source lubricants from independent lubricant manufacturers. This is particularly worrisome for many with private label brands manufactured by independent blenders.
With six lubricant price increases in six months, additive supply extremely tight, base oils in short supply, limits on transportation and packaging, and what many lubricant distributors say are deep allocations placed on finished lubricant supply, there is little doubt that the industry is moving through extraordinarily challenging times. At the same time, however, in the views of those that have been working hard over the years to position themselves for growth, these times also afford tremendous opportunities as the economy recovers.
If additive and base oil supply loosens up in July, and the pipeline of finished lubricant starts filling shortly after, distributors say they are now looking at what might be a four-to-six-week window of opportunity to capture significantly more business before the competition regains its footing. At the same time, however, many believe supply issues of certain products may last for some time and that easing of supply in July is doubtful. Although base oil supply may loosen up; chemical building blocks, packaging materials, transportation are also having supply chain issues that may be less visible to distributors and marketers and take more time to resolve.
So, the message from many distributors and blenders is that there are currently tremendous opportunities to grow business, but it can’t happen without supply. Further, there will be some notable shifts in market share among brands, marketers, and other suppliers that will benefit the first to get product. But when this might occur remains a big question, particularly when one factors in the potential for more supply line interruptions as we enter hurricane season with no inventory to buffer outages. This is a time of the year when most are building inventory not struggling to get products.
In conclusion, although it appears there are significant opportunities for distributors to grow their business, the window of opportunity is expected to be short lived as supply and demand move towards balance. As it moves, the gains in business will likely go to those that have already worked hard to optimize their supply lines and build strong relationships with their supply partners. Their gains, however, will come at the expense of others in what is arguably close to a zero-sum game in the US lubricants market.
READ MORE HERE: jobbersworld.com
How to move automotive supply chains forward
While overall sales for automobiles took a big hit in 2020, the electric vehicle (EV) has proven to be a silver lining—increasing in market share from 2.5 percent in March 2020 to four percent by the end of the year. The crisis also represents major strides in the automotive supply chain, most notably: the pandemic’s impact has expedited the utilization of technology for automation and supply chain communication.
Unfortunately, COVID-19 also revealed that many organizations were unprepared for such a crisis. When the lockdowns occurred, many executives in the automotive industry found themselves without the ability to repair on-premise systems and processes. Organizations with hefty requirements for support and error correction spent too much time firefighting and remaining reactive.
In contrast, organizations that reinvested and re-evaluated their systems to prepare for such a disruption, fared far better than their counterparts that did not. With the exponential amount of data being exchanged today, these organizations chose to improve their infrastructure and transition from outdated practices, such as FTP, functioning at nearly dial-up speeds.
Manual processes opened the door for many errors, supply deviations, and failures. Since there was no access to on-premise systems or in-person coordination between employees, significant gaps in the supply chain process were exposed.
The traditional process of manual uploading of Advanced Shipping Notices (ASN)s and invoices showed just how much the automotive industry hinged on complex and inefficient data analysis. Outdated manual invoice processes cause payment delays and have highlighted stark inefficiencies, such as restricted cash flow. Furthermore, there are many organizations with zero visibility and a lack of access to reports and KPIs. It had become glaringly obvious how poorly processes had been adopted (i.e., no supply chain synchronization).
When ASNs and invoices are processed in a cloud-based platform with full visibility across the lifecycle of each transaction, constituents across the organization are notified of potential errors and can quickly and easily rectify the issue with minimal manual intervention.
It is vital to implement the correct processes as early as possible. An integrated supply chain solution enables a more seamless operation at the earliest point of the design. In this scenario, a customer has full visibility into incoming shipments and the supplier knows exactly which and when items are received. Supply chain exception management tools enable the supplier to respond to anomalies across the supply chain transactional process.
By relying on advancements in integration adapters and cloud technology, the supplier’s core systems can communicate to any system across its network and trading partner community. This integration also provides the purchaser with visibility into knowing exactly when their vehicle is coming. All these processes are consolidated to improve the financial cycle.
Moving forward with an automated and integrated automotive supply chain is not just about prototyping and manufacturing a vehicle. It is about demonstrating the robustness of the supply chain. The entire digital supply chain goes through the same volume ramp-up as the production line that streamlines the digital transformation from the first engagement with the trading community.
For example, it’s an opportunity for the EV vehicle sector to fix the legacy supply chain issues of the traditional automotive supply chain process. With the sector bringing in a large percentage of new suppliers (technology providers that have never worked in the automotive industry), they have an opportunity to create a “right the first time” supply chain process that provides a two-way stream of traceability and inventory management – ensuring that the OEM has maximum visibility of their incoming supplier demand as well as clear traceability of supplier products from the point of receipt.
There are several key issues in the traditional automotive sector where suppliers are struggling to match parts delivered with parts invoiced. The inconsistency is directly linked to a lack of visibility of the supplier part’s journey from the moment it leaves a supplier’s facility through to the point the part becomes owned by the OEM. This process leans heavily in favor of the OEM where any losses associated with inventory discrepancies are financially covered by the supplier.
Using integrated systems and a wider adoption of RFID would allow suppliers to accurately monitor, manage and account for their parts and result in a more accurate and timely invoice. Allowing greater visibility of a specific component’s journey through the production line will also allow suppliers to react more quickly and more effectively to any inventory deviations caused by quality failures, damage and or loss – thereby reducing production delays at the OEM.
With so many new suppliers entering the EV sector, now is the time to introduce suppliers to cloud-based approaches and integrated supply chain management at the start of product/vehicle development rather than the end of the design phase.
Creating an integrated supply chain process at the earliest point of a supplier’s engagement with an OEM allows the supplier and OEM to prove out their supply chain management and production capabilities, resulting in a greater success rate when a new vehicle program moves from concept/design to mass production. The automotive supply chain — like almost everything else — has little choice but to turn to the cloud to improve efficiencies.
READ MORE HERE: manufacturing.net
Multichannel automotive marketing campaigns
Today, dealerships and consumers are more dependent on digital than ever. To succeed in this new era of car buying, dealerships must personalize each customer’s path to purchase and cater to their diverse needs at all touchpoints—especially those taking place online. Backed by industry-leading consumer insights, Dealer.com is constantly focusing on total user experience, with technologies and tools that give their clients an advantage in a very competitive automotive retail landscape.
More and more consumers are open to completing car purchases online, and car brands are leveling up their digital advertising campaigns to engage tech-savvy shoppers wary of the dealership experience.
The Ford Maverick, a smaller, more affordable, gas-electric hybrid pickup, kicked off its campaign with a teaser spot on June 3. The digital video features actress and influencer Gabrielle Union with the tagline “the truck you didn’t see coming, is coming.”
The goal of the Maverick advertising campaign, according to Ford, is to reach a more diverse audience who might not historically consider a Ford. “Ford is delivering a new kind of pickup – compact but mighty, built for makers and doers, stunningly fuel efficient, and packed with clever technology and features. The all-new 2022 Ford Maverick is the truck for people who never knew they wanted a truck.”
Along with the Gabrielle Union spots, which Ford and Union are sharing across social media, the Maverick website, Instagram content and other national commercials feature young, hip drivers, instead of the more “traditional” truck-driving audience. And, instead of driving down country roads, the Maverick is shown in cities, with Ford hoping to position the Maverick as a vehicle designed for “city driving or escaping the urban life.” More and more brands are creating opportunities to be seen as inclusive within both advertising and product offerings, an increasingly important prerequisite for younger consumers.
Toyota and Volkswagen recently launched campaigns with popular social media platform, Pinterest. A study in 2019 found that Pinterest is a reliable site for discovering new vehicles and influential when consumers shop for cars. The campaign for the 2021 Toyota Sienna, which debuted in March, partnered with Pinterest creators who used “Pinterest’s Story Pins format to showcase the Sienna through video and static content, including tips and design ideas that are meant to inspire consumers.”
Recently, Pinterest turned to its creators for inventive and creative content. By pairing creators with brands, Pinterest is able to highlight its features for users and advertisers. Meanwhile, Toyota has the opportunity to showcase the “realness” and functionality of the Sienna, engaging consumers browsing Pinterest for cars. 97% of searches on Pinterest are unbranded, making an eye-catching campaign designed for its stoppability critical for reaching the 62% of Pinners who make vehicle purchases based on the car content they discover on Pinterest.
Although many people have hit the road again, the appeal of virtual test drives and online car buying experiences still exists, particularly for consumers who want to avoid the often hours-long process of buying cars in person.
The rise of EVs aligns with the preferences of “green consumers” who are looking for ways to make purchases that are more eco-friendly and forward thinking. According to Marketing Dive, and likely a reason Volkswagen chose Pinterest, “people who use Pinterest are 55% more likely to be concerned about their personal carbon footprint than people who don’t.”
To introduce the newly revamped 2022 Hyundai Tucson, Hyundai partnered with Disney on custom TV ads and digital content that feature characters from Disney shows and films, including the Marvel catalog. The Hyundai campaign is the largest marketing effort of this type for the car manufacturer, which opted not to advertise during the Super Bowl this year. The partnership is an extension of Hyundai’s fully integrated marketing campaign “Question Everything,” which featured celebrities like Jason Bateman and Kawhi Leonard in commercials, social media and other digital executions.
The superhero promotions include “a range of [Disney+] series-themed vignettes across linear TV, streaming, social and digital.” Strategic partnerships can be an effective way to target audiences from different consumer groups, creating brand affinity and increased opportunities for multichannel engagement.
Shoppers who are exposed to personalized content during their visit view more VDPs, submit more lead forms and are more likely to start their deal online.
“When it comes to automotive sales, personalization can be very powerful, but dealers have to make the most of the tools available to reap the rewards,” said Bob George, assistant vice president of Product Management at Dealer.com. “By delivering a personalized experience to consumers according to their unique preferences, the faster you can serve your online visitors and help them achieve their goals. This ultimately leads to better retention rates and better word-of-mouth for your brand.”
READ MORE HERE: insights.digitalmediasolutions.com