The automotive industry has been severely hit by supply chain disruptions, creating a domino effect of production delays, transport bottlenecks, and factory closures. These disruptions have hindered production and strained manufacturer-supplier relationships, highlighting the urgent need to strengthen supply chain resilience.
The global automotive industry has experienced a number of supply chain challenges over the years, including a shortage of semiconductors during COVID-19, resulting in an industry loss of some 210 million U.S. dollars in revenue in 2021, and the UAW Union strikes which put production lines on halt for several months. During the UAW strikes, RapidRatings provided data to Reuters that called out the secondary consequences faced by private auto suppliers, showcasing the broader impact on the supply chain.
Additionally, the industry is still facing the impacts of lingering inflation, high interest rates, and various geopolitical events, all of which are impacting supplier operations and the deliverability of crucial parts. Recaro, a leading sports seat supplier for major automotive companies, recently filed for bankruptcy, highlighting the ongoing impact of these disruptions.
Economic factors such as inflation and higher interest rates are disproportionately impacting private suppliers in the automotive industry. RapidRatings' data shows that on average, 75% of Fortune 1000 company supply chains are made up of private companies. These suppliers' vulnerability to economic fluctuations increase the risk within automotive supply chains, leading to disruptions and strained manufacturer-supplier relationships.
Armed with this current disruption knowledge, how can automotive companies pinpoint and mitigate risk within their supply chains? By assessing the suppliers' financial health of their suppliers to identify which suppliers can effectively support the production process.
RapidRatings' data-driven insights reveal the true impact of these disruptions on the automotive industry. For example: Transportation Equipment Manufacturing constitutes 18% of auto supply chains, yet nearly 30% of all private suppliers in this sector are classified as High Risk according to our financial health analysis.
The impact doesn't stop there — the next two largest segments in the automotive supply chain, Plastics, and Rubber Products Manufacturing (4%) and Electrical Equipment, Appliance, and Component Manufacturing (3), are also categorized as high risk. Defaults in these segments would cause significant challenges for manufacturers.
Companies are adapting to the changing automotive industry by incorporating electric vehicles (EV’s). However, they are encountering supply chain issues as they try to update their products and factories.
Looking specifically at electric vehicle suppliers in North America, the financial health of this sector is quite alarming. From 2019 to 2023, private EV suppliers experienced a 20.9% drop in cash to total assets and a staggering 90.9% decrease in operating margins. Meanwhile, implied interest rates rose by over 19%, indicating that companies are depleting cash reserves to manage their debt. Despite private suppliers facing the brunt of today’s economic challenges, the pain is felt across the board. Currently, more than 20% of EV suppliers, both public and private, are categorized as high-risk or very high-risk.
These risks in EV production are ongoing and continue to pose challenges for companies in the industry. Without reliable suppliers and an efficient supply chain, advancing in this competitive market becomes nearly impossible.
RapidRatings specializes in using predictive analytics to thoroughly analyze the financial statements of both public and private companies, pinpointing hidden financial risks. Why is this data-driven approach significant? Because a company's financial health is crucial—it affects every other area of risk management. Financial performance can determine if a company has the wherewithal to stay resilient against various forms of risk, including ESG, cyber, and quality & assurance.
It is more crucial than ever for automotive companies to manage supplier risks to safeguard their operations proactively. RapidRatings' insights and predictive analytics provide the tools to build a more resilient supply chain, ensuring long-term success in a dynamic market.
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