How Can the Automotive Industry Evade the Omicron Disruptions? Is the Automotive Supply Chain Prepared for the New Omicron Variant?

Considering the possibilities of wide range of disruption the new variant can cause, Vantage Market Research believes flexibility in automobile manufacturing can help OEMs maintain production rate.

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With the Omicron variant having spread to more than 35 countries within 15 days of the first case reported in South Africa, it is expected that most national governments would take actions well beforehand. This would be highly crucial to stop the further spread of the virus but may prove a nightmare for automotive OEMs and Tier 1s. Already under pressure since 2019, the automotive industry had just started showing signs of recovery in the first half of 2021 when chip shortage further challenged the industry. The operational crisis caused due to the COVID-19 pandemic and worsened by chip shortage has highlighted the importance of multiple sourcing destinations. Overall, it has now become crucial to create multiple sourcing destinations and maintain them irrespective of the supply chain situations.

We, at Vantage Market Research, are continuously trying to understand the possible impacts of the new variant and provide solutions to overcome the crisis in an effective way.

According to our findings, chip shortage has already slowed the development of advanced technologies such as connected cars, ADAS and also to some extent autonomous vehicles. Various automotive OEMs such as Ford, General Motors, Tata Motors, BMW and many others have already reduced the usage of semiconductor chips in their vehicle to maintain the production rates, thereby meeting demand optimally. Thus, it can be inferred that maintaining production rates would remain a crucial challenge for the automotive industry irrespective of level of impact of Omicron variant.

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Through extensive research and discussion with automotive majors, Vantage Market Research is focused on helping the automotive industry with sustainable solutions:

      1.   Additional Inventory for Continued Operations:

One of the most sustainable solutions to overcome the possible impacts of Omicron variant is to stock up the inventory for additional 1-2 months. Analyzing the previous patterns of COVID-19 spreads, it may take another 3-4 weeks to amplify the number of cases infected with new variant, thereby paving way for restrictions. Thus, companies can stock up their inventories by forecasting the restrictions to come into effect by the end of December 2021.

In addition, it would be crucial to distribute the inventory across multiple facilities to ensure continued operation even in case of a nationwide lockdown.

      2.   Flexibility in Manufacturing:

Most automotive companies such as Continental, Bosch and others reduced their spending on new technology developments, despite having strong cash flows. This indicates that pandemics and supply chain disruptions have potential of pushing back the industry to square one. Thus, it would be crucial to have alternatives at hand for producing vehicles with variable features. Various OEMs have already reduced the number of features such as heated steering, heated seats, connectivity modules and various others to preserve chips for core vehicle functionalities. This has helped the companies to keep up with the production rate, thereby maintaining the business flow. Thus, having multiple variant plans ready for a vehicle would help the companies to overcome supply chain disruptions of any other automotive component. This may also include eliminating the spare tire from vehicles which can be further provided to the consumers once things start getting normal.

      3.   Provisions for Continued Operations

While companies are bound to be more prepared with supply chain and production line modifications based on previous experience, one of the most challenging and unpredictable concern is maintaining manpower for operations. Companies can make provisions for their employees by providing onsite residence, healthcare facilities, provision for the families to make sure they can help the plants to run at optimum capacity. By creating such facilities for the employees, the companies can overcome the challenge of restrictions which often result in unavailability of manpower.