Why the automotive supply chain faces another tough year

Suppliers have been dealing with one operating crisis after another since 2019, when the UAW’s strike against General Motors in the U.S. created major planning and financial ripples throughout the supply chain.

Since then, companies have dealt with the pandemic, higher prices for energy and raw materials, labor shortages, complications in logistics, factory shutdowns in China, production interruptions at subtier parts factories and market uncertainty over how quickly automakers will roll out new electric vehicles or wind down legacy internal combustion programs.

“This coming fourth quarter, we will have basically been in this situation for four years,” Robinet said. “That respite that a lot of suppliers hoped for as volumes came back — they just haven’t had that kind of relief. It’s been calamity after calamity after calamity.”

But PwC’s Carrannanto said that suppliers can navigate this period of uncertainty and emerge stronger than they were when they entered it in 2019. He said firms should use this year to focus on ways to improve liquidity and profitability while keeping their long-term focus on making sure they are set up well for the era of electrification and connectivity.

“Any supplier can certainly benefit if they make the right moves in their portfolio and their footprint to be more flexible and come out of the recessionary pressures in a stronger and more profitable position,” he said.

He predicted that a large number of mergers and acquisitions will likely occur over the next year, particularly in areas related to EVs, electronics and software. Given the financial distress many companies find themselves in, there could be some value buys to be had for companies looking to bolster their positions in those areas, he said.

“Now is the time to rethink your portfolio and your capacity to see if you can create more value in this time frame,” Carrannanto said.

The past few years have driven home the importance of being nimble and flexible, Robinet said.

“There’s just a lot going on,” he said. “There’s more than just one significant issue that these suppliers need to deal with at one time.”

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