Challenges in the Global Supply Chain and How Recyclers Can Benefit By Ryan Mandell - Report from Mitchell International
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n the immediate wake of the COVID-19 pandemic, many questions arose sur- rounding the continued viability of the parts supply chain. We soon saw a strong resiliency in the availability of parts across all channels with relatively limited dis- ruptions reported in 2020. However, the aftershocks of COVID may have greater impact on the global supply chain than the initial impact. Moreover, while many stakeholders throughout the industry will find challenges in the months and years ahead, the trends currently developing in several key areas may very likely prove to be a strong opportunity for automotive recyclers to flourish.
Ramifications from Shut Downs In the spring of 2020, many companies either significantly reduced or completely shut down their manufacturing operations in an effort to protect their employees. Beginning in May 2020, many had begun to reopen a portion of their facilities but some still have not returned to full-scale production.
The global semiconductor (also referred to as microprocessors) manufacturing industry was particularly hard hit as supply fell dramatically due to production stoppages. This occurred at the same time as demand began to increase rapidly as workers around the world found them- selves locked down and working from home indefinitely, with greater needs for business efficiency products and consumer electronics, both of which are heavily reliant on semiconductors. Vehicle manufacturers now face mounting pressure from the worldwide shortage of semiconductors that is cur- rently affecting new vehicle supply and has the potential to threaten the availability of certain part types that are reliant on such components, such as ADAS sensors, control modules, cameras, and a variety of ABS and power steering parts. The average new model year vehicle requires over 100 semiconductors, and new electric vehicles even more than that. Large tech companies like Apple and Samsung, however, make up the lion’s share of the market for micropro-
cessors causing automakers to fall further down the list when it comes to prioritizing order fulfillment.
New vehicle assembly is currently the hardest hit segment of the industry. Ford, for example, is reporting production stop- pages across the United States and estimates the company could potentially suffer 1.1 million units of lost production in 2021. The lack of new vehicle availability is driving used vehicle prices atypically higher, with Manheim reporting an increase in the Used Vehicle Value Index of 26.29% in March 2021 compared to March 2020. To put this in perspective, the growth in the same index between March 2018 and March 2020 was 8.49%.
Opportunity Inside Shortages The effect of this global semiconductor supply shortage on auto recyclers is two- fold: 1) a reduction in supply of new, semi- conductor reliant parts means a potential increase in demand for used components that can be procured more readily, and 2) the increase in demand for used vehi- cles means more vehicles being driven that qualify for the use of recycled parts in the course of a collision repair, as many insurance carriers prohibit the use of recy- cled parts on vehicles of a certain age and under a certain mileage. While certainly an increase in used vehicle values means an increase in the cost of salvage, there remains opportunities for recyclers to capi- talize as well.
Upside of Supply Chain Issues As noted, the widespread lockdowns and shift to remote work has meant an increased demand for consumer electronics (primarily acquired via e-commerce) and hardware required to maintain enterprise levels of productivity in an off-site environment. The bulk of these products come from mainland China and the increase in goods
34 // May-June 2021 Automotive Recycling
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