Current trends and conflicts call for a transformation of automotive production networks

Rising logistics costs, trade conflicts and the pandemic have left the global automobile manufacturing model exposed. In this special report, Roland Berger examines the best road forward for international automotive players.

Management Summary

To serve global markets, vehicle manufacturers pooled production volumes to achieve economies of scale but lost sight of regional dependencies and even neglected transregional transportation services. The coronavirus pandemic has mercilessly exposed the vulnerability of global production and sourcing structures in the automotive industry. Inadequate supply capabilities in weakening regions led to severe disruption in the economies of dependent regions.

The short-term consequences of the pandemic – namely a collapse in demand and the negative effect of temporary border closures on international supply flows – have put automobile makers under significant financial pressure. But the pandemic doesn't shoulder all the blame. Rising logistics costs, increased carbon taxes and intensified trade conflicts are also challenging existing production and procurement structures.

Demand structures for vehicles are shifting enormously in some cases, presenting manufacturers with major challenges. For example, Full-size SUV production is mainly located in North America and Europe, while demand for this segment has risen sharply in Asia in particular. The only way for vehicle manufacturers to cope with this lately has been through higher transportation costs and challenging supply adjustments.

In our view, manufacturers need to reorganize their production and sourcing in a way that production and sourcing structures better match regional demand to achieve a holistic cost optimum. Increasing production flexibility, regionalized manufacturing and risk management are appropriate levers to deal with the uncertainty arising from trade conflicts, rising transportation costs and border closures.

Thus, automotive manufacturers can emerge stronger from recent conflicts and in better financial health with new risk profiles and novel supply strategies. By simplifying, shortening and regionalizing their value chains with more agile, digital and innovative technology, adaptive manufacturers will secure their futures.

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