Automotive sector

Market Discussion: Skids amid slowing automotive manufacturing output

COVID and the shortage of microchips, the war in Ukraine and pulverized supply chains have dampened Hungary’s automotive industry, the main driver of the national economy, in turn weighing on the country’s industrial production. The Budapest Business Journal asked local players how they were coping with the less than ideal market environment.

Output of automakers, which is Hungary’s largest manufacturing segment with a 22% share of the entire manufacturing sector in March, fell 13.3% year-on-year, according to the latest economic indicators compiled by the Country’s Central Statistical Office (KSH). Shortages of semiconductors and supply chain issues caused by the aftermath of the pandemic and the Russian invasion of Ukraine weighed on production.

The lackluster performance of the sector also dragged down Hungary’s overall industrial production in March, which slowed to 3.6% growth from 4.8% in February. Adjusted for the number of working days, overall production increased by 4.2%.

“Right now, the combination of coronavirus restrictions, semiconductor shortages and component supply uncertainties due to the Russian-Ukrainian war are impacting the automotive industry worldwide, including the production of Audi Hungaria,” Audi Hungaria Communication told BBJ.

“As of today, the global chip shortage is still the main concern,” acknowledged Zsuzsanna Bonnár-Csonka, Corporate Communications Manager at Magyar Suzuki Zrt.

After KSH released the March figures, Magyar Bankholding chief analyst Gergely Suppan told state-run MTI news agency that supply chain disruptions remained a significant risk, not just for the automotive sector, but also for companies that manufacture products as diverse as aluminum or artificial fertilizers.

Also speaking to MTI, ING Bank senior analyst Péter Virovácz said the slowdown was “not a surprise” given the auto industry’s string of downsizing since the outbreak of war, with companies facing parts shortages.

Zsuzsanna Bonnar-Csonka

Mitigate impacts

Audi Hungaria says it is determined to mitigate the negative impacts of the current situation.

“We do everything we can to minimize the impact of these external factors on our business and our employees as much as possible. Audi Hungaria has several suppliers in Ukraine. The conflict has an impact on our suppliers and our supply systems, and therefore on the production of our engine and vehicle factories,” the company explained to us.

Nonetheless, Audi Hungaria says production at its Hungarian plant is stable as the company has temporarily adjusted production to available components in light of the disruptions.

“We are constantly analyzing the situation and are in close contact with the [parent company] Volkswagen Group and our suppliers. Our suppliers in Ukraine are doing everything possible to stabilize production at their factories,” Hungarian Audi added.

Magyar Suzuki is also cautious and aware of market disruptions. However, its Hungarian plant is in a slightly better position than Audi as it has no Tier 1 suppliers in the affected areas. But that doesn’t mean there are no more supply chain issues.

“Our Tier 1 suppliers have multiple Tier 2 and Tier 3 suppliers in Ukraine, and they’re going to great lengths to maintain parts supply,” Bonnár-Csonka said.

Suspended shipments

Due to suspensions by transport companies, Magyar Suzuki has decided to cease shipments to Russia.

“Our company has also suspended car exports to Russia and Ukraine from March. We export around 10,000 cars per year to Russia and Ukraine from Esztergom. We have moved the affected orders to other markets to maintain our planned production volumes,” explains Bonnár-Csonka.

With supply chain issues affecting new car production in Hungary, a common trend in several other European countries, used car sales rose 12% in March, according to Das Weltauto, the car business of Hungary. used car importer Porsche Hungaria.

Citing figures compiled by Datahouse, he said Opel was the most popular brand among used-car buyers during the period, with Volkswagen in second place, followed by Suzuki. Das Weltauto Centrum sales manager Péter Tóth said used car prices were on the rise, reaching as much as 15-20% for some models as the supply of new cars dwindled, reports MTI.

Hit by pandemic shutdowns and then the war in Ukraine, globalization seems to be slowly giving way to localization, with much talk about shortening supply chains and outreach operations. However, the difficulties of the situation cannot be underestimated, as Magyar Suzuki’s response clearly shows.

“This is a very complex issue in many ways, but it is very important to review the entire supply chain and stabilize and improve critical elements, especially in light of the disruptions. current supply. We need to learn from the problems, not work around them, in order to move forward,” concludes Bonnár-Csonka.

The Budapest Business Journal has contacted all major Hungarian automakers to gauge current market sentiment. Only Audi Hungaria and Magyar Suzuki had responded to our inquiries at the time of writing.

This article first appeared in the May 20, 2022 print issue of the Budapest Business Journal.