Parts Supply Concerns
In recent years there have been struggles with product shortages and delays, mainly due to international tariffs. But with the addition of COVID-19 and the associated effects, such as blocked ports and production facility shutdowns we have a whole new type of crisis.
When the world first shut down at the beginning of 2020, many assumed we would be quick to bounce back. Unfortunately, the supply chain was slow to restart for a variety of reasons.
Auto parts suppliers were slow to begin making older vehicle parts because of the great demand for new vehicle parts. Dan Hearsch, managing director in AlixPartners’ automotive and industrial practice, shared “They’re focused on just keeping the OEM plants running. The last thing that they want to make or have to make are service parts because service parts have a whole other level of complexity.”
The situation is not getting better, Mr. Hearsch said, because the focus remains on getting vehicle production back up and running. Because of the global shortage of microchips and semiconductors (largely related to the pandemic), automakers have been seriously affected by keeping up with demand. “They’re focused on just keeping the OEM plants running,” added Hearsch. “The last thing that they want to make or have to make are service parts because service parts have a whole other level of complexity.”
And then of course there was the crisis at the ports. “A significant portion of repair parts, particularly for collisions, come from Taiwan,” said Hearsch. “Lots of that is backed up at the ports, so availability of that stuff is not great.”
Of course, there have also been massive labor shortages. “Part of the problem is that people are not yet willing to come back to work,” says Bill Conerly, principal of his consulting firm in Lake Oswego, Oregon. “But the fact is that there were not as many pandemic-related layoffs in manufacturing as in, say, food service. A larger issue is demographics. Older people are retiring, and younger people don’t want to go into dirty, noisy factories. And then you have government cash payments for people who get laid off. And finally, there are childcare issues.”
With all of these supply issues, prices have, of course, increased. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index on motor vehicle parts rose 10% from November 2020 to November 2021.
It seems prices have gone up across every sector since the beginning of the pandemic. A lot of this is due to labor shortages, wage increases, materials/supplies inflations, delivery fee increases, etc. The cost has to be passed along at some point.
Advance Auto Parts, Inc. has experienced price increases in its production costs and has worked with vendors to get the lowest prices, Chief Financial Officer Jeff Shepherd said, “But this industry is fairly rational, and when necessary, we have had to pass it on in the form of price.”
Many companies are struggling with pricing, profit and loss right now. Questioning how much can be passed on to the consumer and much of a hit they can take themselves to keep the customer happy. “Revenues will probably hold up or even increase because of higher demand, but margins will likely be hit because of increases in the cost of raw materials, labor, and inventory,” says Palisin, executive director of the Manufacturers’ Association. “It’s a very unusual situation where all of these cost increases are happening at once – and at a time when tariffs are still in place. Companies just can’t pass along everything to customers.”
And some companies (maybe after seeing what was happening with toilet papers on the shelves at the beginning of the pandemic) began planning early on to keep a strong supply for their own inventory as well as their wholesale customers. But even with all the planning possible, the effects are still noticeable to LaFontaine Automotive Group, based in Michigan; they’ve still seen how the shortages have affected customers. LaFontaine operates 29 dealerships, representing 51 franchises, the group has eight collision shops and also supplies parts to 1,000 wholesale customers. While typically LaFontaine might have about 300 parts on backorder, they now have about 1,500.
“It’s bad,” said Chris Lavery, parts director for LaFontaine. “Luckily, we leverage the size of our group with all of our multiple franchises, and then multiple stores within those franchises. The reps help us a lot, but overall, it is extremely difficult to get accurate ETAs to customers.”
It is still taking weeks, if not months, to get customers’ vehicles repairs. Shops and parts distributors are getting creative with temporary fixes and finding new vendors all in an effort to assist customers in getting back on the road.
But things seem to be slowly improving feels Lavery. While specialty parts, from accessories to engines are still an issue in obtaining; acquiring the day-to-day parts, like wipers, rotors and pads are getting much easier to find. Hopefully, this is the light at the end of the “parts supply crisis” tunnel.