Russia-Ukraine war could cut auto production by millions of vehicles

Russia’s invasion of Ukraine could reduce global production of new cars and trucks by millions of units this year, according to experts.

Local Russian production is expected to feel the greatest near-term impact as companies suspend operations. But, officials say, the longer the war continues, the higher the risk of ripple effects across the automotive industry.

“There’s no question. It’s going to ripple. It’s just going to be really dependent on obviously how long this goes on,” said Jeff Schuster, president of global forecasting and the Americas at LMC Automotive. “The sanctions and trade impact play a big role in that.”

The invasion is already creating new supply problems for parts such as wire harnesses, which act as a vehicle’s wiring system. The war is also expected to further escalate existing supply limitations of parts such as catalytic converters and semiconductor chips that use materials and gases from the region. The crisis could worsen rising inflation and propel already record-high vehicle prices even higher.

“This does have global implications in terms of adding to inflationary pressure, pricing pressure and ultimately dealing another blow to the consumer,” Schuster said.

For U.S. consumers, the most immediate impact is higher gas prices. The national average for a gallon of gas hit $4.009 on Sunday, according to AAA — the highest since July 2008, not adjusted for inflation.

Early forecasts for the reduction in vehicle output resulting from the conflict vary greatly given the fluidity of the situation.

LMC’s Schuster said the impact could amount to millions of units of production in 2022. His firm has already adjusted its forecast to cut 700,000 units of European production, he said.

The European auto market will feel the effects far more quickly than the U.S. and other markets. European automakers such as Audi and Mercedes-Benz have said they plan to cut production output at plants due to parts disruptions out of Ukraine — specifically, wire harnesses.

“Wire harnesses are the most critical near-term bottleneck, in our view, already causing significant production interruption amongst all German OEMs,” UBS analyst Patrick Hummel said Monday in an investor note. “We think significant downtimes in the next few weeks are likely, but limited to European production because wire harnesses are typically sourced regionally.”

AutoForecast Solutions expects vehicle production this year in Russia and Ukraine to get cut in half as a result of the conflict, falling to around 800,000 units.

An early “pessimistic outlook” from research firm IHS Markit expects the global impact this year to be about 3.5 million fewer vehicles in connection to semiconductor chip constraints. Russia and Ukraine are critical sources of neon gas and palladium that are used to produce…