Back in 2007, Europe was the leader in terms of automotive production. This is where almost every third vehicle was produced. North America was second (21%), followed by Japan and South Korea (21%). However, by 2021, China had already caught up with Europe, with both regions being responsible for 23% of global production.
Today, 32% of cars are produced in China, while Europe (19%) is vying with North America (17%) for third place, according to data in the report “The Automobile Industry: Pocket Guide 2023/2024″ by the European Automobile Manufacturers Association (ACEA).
Moreover, even though global car production is growing rapidly, increasing by almost 6% in 2022 compared to the previous year, Europe cannot be credited with this, as it was the only region to record a decline in the analyzed period (0.5%). During this time, production in China increased by over 3%, and in South Asia – by over 22%.
Similarly, Europe relies primarily on Germany for production (over 3.7 million vehicles in 2022), Spain (2.2 million), France (1.4 million), and Czechia (1.2 million).
Where is automotive manufacturing most commonplace in Europe?
Around 13 million vehicles are produced in the European Union every year. Besides France and Spain, Poland is one of the most important when it comes to the production of commercial vehicles.
It is also one of the most important regions on the European map of automotive battery and engine factories. In 2023, there were 19 such plants in Poland. According to ACEA data, this was only surpassed by Germany (54) and Italy (23).
No wonder then that the automotive industry is very important to the Polish economy. In 2021, it accounted for 8% of Polish GDP, and its share in industrial production exceeded 10%. In the same year, about 397,000 people worked in the industry – estimates PSPA.
Meanwhile, revenue in the sector during the first three quarters of 2023 amounted to roughly €39.7m, which represents an 18.7% year-on-year increase according to a quarterly report on the Polish automotive industry authored by KPMG.
In recent years, production has risen in Poland too. During the first three quarters of last year, 221,500 vehicle units were produced, which was a year-on-year increase of 48.5%. The export of engines, car parts and accessories is also growing.
“The driving force of the industry is the supply of vehicle parts. Poland ranks 10th on the list of the largest exporters of components in the world, with an export value of USD 12.3 billion,” states the Polish Alternative Fuels Association in its report “The Impact of Electromobility on Economic Development in Poland.”
Besides vehicle components made of rubber and plastic, Poland is producing hydrogen fuel cells and lithium-ion batteries, which is particularly important from the point of view of developing the sector to produce zero-emission vehicles.
What’s next for just-in-time supply chains?
Prior to the pandemic, the European automotive industry was renowned for embracing just-in-time supply chains. It is therefore not surprising manufacturers have been closely watching supply chain disruptions in recent years, first caused by the lockdown, then downtime in ports, the war in Ukraine, and subsequent global difficulties, including the shipping crisis related to attacks on ships in the Suez Canal.
“It was said that during COVID, most companies changed their chains from just-in-time to just-in-case, but in the long term, this is a difficult and expensive operating model,” says Andrzej Mowczan, a member of the management board for commercial affairs at Wielton. At the same time, he states that his company has never been completely focused on just-in-time.
“We have always been guided by a certain economic logic when deciding on the volume of supplies and inventories. The situation with deliveries today is so comfortable that we do not have to store millions of zlotys in production warehouses. However, we must admit that some components with an older production date can still be found here,” he adds.
Some logistics operators are still using a modified delivery system for customers from the automotive industry.
Szymon Szczepanik
“Following the pre-Covid just-in-time standard, Seifert Polska has developed and offers its current and potential clients a just-in-stock solution as part of the implementation of the safety stock policy. These activities are aimed at preventing and minimizing the risk of longer downtime in the form of buffering, and creating domestic stocks of raw materials and semi-finished products mainly from Asia,” explains Szymon Szczepanik, logistics director and a member of the management board.
Nevertheless, it has also not gone unnoticed that some producers are “slowly returning to just in time.” This is confirmed by the representative of Kuehne + Nagel, in whose opinion this standard remains a „bypassing delivery model.”
“Many companies face difficulties in searching for alternative solutions because maintaining large warehouse stocks is still reluctantly accepted. In the case of automotive companies, factories have stocks of components needed to power their production line or assembly line for one or two days, and in the largest factories, the buffer is only a few hours. There is no infrastructure that would guarantee the delivery of goods or components to the production line in the event of unpredictable circumstances. This was a very big challenge for both manufacturers who assemble cars and suppliers of ready-made components,” says Wojciech Sienicki, managing director of the company’s Polish branch.
To illustrate this even better, Wojciech Sienicki compares the structure of the automotive industry market to a pyramid. At the top are car manufacturers who have their assembly lines. Each of them is supplied by suppliers who provide them with ready-made modules. They, in turn, have their own subcontractors who provide them with parts to assemble the modules, e.g. to assemble the cockpit, both plastic elements, upholstery elements, and ready-made electrical harnesses are needed. The number of sub-suppliers may increase with each lower floor of the pyramid, he explains.
“Just-in-time” is still the most important determinant of an optimized supply chain – enterprises want to deliver their products at low costs and in a timely manner – he concludes. However, Kuehne + Nagel also notices some changes taking place due to changes in logistics.
“The importance of ‘just-in-case’ logistics is slowly growing. An increased focus on just-in-case involves diversifying supply chain operations by combining and leveraging different modes, routes, ports, and supply locations. Thanks to proactive planning in advance and a wide range of options to choose from, customers can choose an alternative solution that will meet specific needs in emergency situations,” explains Wojciech Sienicki.
How have global difficulties affected the automotive business from a manufacturer’s perspective?
According to Andrzej Mowczan, member of the Management Board for Commercial Affairs at Wielton, manufacturers in the truck, semi-trailer, and trailer industry are going through difficult and turbulent times. He says the situation has not yet returned to normal, but there is a noticeable improvement in the availability of components, and the production and delivery times for vehicles to customers have been shortened.
Andrzej Mowczan
Moreover, the industry continues to face a changing market environment, and European and global economies are struggling with many problems related to the consequences of the war in Ukraine, rising energy and gas prices, galloping inflation, and rising financing costs.
“As a result, in many industries, including ours, we are observing a market slowdown. High inflation and business costs, decreased demand for transport services, high-interest rates translate into lower demand for semi-trailers and trailers, as well as postponing purchase decisions,” adds Mowczan.
The challenges in semiconductor sourcing
It is no secret that obtaining semiconductors has recently become particularly challenging.
Today, logistics operators are doing all they can to ensure that their customers, including Original Equipment Manufacturers (OEMs), have access to sufficient semiconductor supply.
This is confirmed by Krzysztof Szeligowski, FVL sales director at ADAMPOL, who has similar observations to Szymon Szczepanik.
“The dependence on Asian contract manufacturers was exposed by the paralysis of the industry in 2021 and 2022. Europe and North America have drawn conclusions from the times of shortages and strive for greater autonomy in the production of semiconductors. In step with the geopolitical push to counter China’s growing ambitions in the industry, domestic production is being supported on both sides of the Atlantic. This is a trend that reduces exposure to future periods of limited semiconductor supply resulting from booms and busts in the Asian consumer electronics production ecosystem,” he explains.
Krzysztof Szeligowski
Szeligowski also notes that semiconductor production plants are to be built in Poland in the years 2024-2026, “to help secure supplies in the European Union and strengthen the resilience of the EU semiconductor ecosystem.” The value of the program is USD 1.5 billion.
Relocation of factories and its impact on logistics: an operators perspective
As Chinese car production increases in Europe, supply chain centres are expected to be moved closer to European markets. This potentially poses a challenge for European suppliers in terms of logistics costs and supply chain management, – explains Wojciech Sienicki, managing director of the Polish branch of Kuehne + Nagel.
Wojciech Sienicki
In his opinion, Africa is becoming one of the most important markets for the production of components for the automotive industry. The greatest concentration in the sector is observed mainly in Morocco, Tunisia, and South Africa. In Europe, Hungary is gaining importance due to greater legislative stability. This list also includes Poland, which is considered the Detroit of Eastern Europe, he adds.
To remain competitive, Europe must respond. This means European supply chains must adapt to a new reality, with the entry of Chinese producers introducing new competitive dynamics. This may lead to higher component prices. In turn, Chinese suppliers will face the need to cope with European standards while expanding their logistics capabilities – explains the expert.
The automotive industry in the future
Although disruptions in supply chains continue to occur, logistics operators argue that when serving customers from the automotive industry, the chain is highly resilient.
It is noticeable that companies in the automotive industry are moving away from reactive logistics management, where they react to disruptions after they occur. Instead, they focus on predictive management, using data and analytics to anticipate disruptions and take steps to prevent them.
“Companies realize that investing in logistics resilience is critical to long-term success. These activities include having alternative suppliers and reserving inventories, using different routes and transport models, as well as using technology to increase visibility and control over the supply chain,” explains Wojciech Sienicki from Kuehne + Nagel.
Cost reduction through minimizing inventory and production capacity continues to be evident, but supply chain disruptions have exposed the risks associated with this approach. The pandemic has shown that supply chain management has become a critical success factor in all industries, not just an expense that must be incurred, he adds.
“There is no shortage of challenges. Shifts in supply chains and failed plans resulted in large fluctuations in volumes and, as a result, great uncertainty, lack of stability, and security in the planning and execution of services. Currently, in FVL (ready vehicle logistics network – editor’s note), disturbances in rail transport and emergency shifting of volumes to road transport play a particular role,” points out Krzysztof Szeligowski from ADAMPOL.
Nevertheless, representatives of the logistics industry are convinced that specialization in servicing the automotive industry, supported by a wide portfolio of services ensuring revenue diversification, will help them operate in uncertain times.
“With the automotive market growing again by 18% from 2023, along with the increase in the number of our logistics movements, if the market development is the same in 2024, we will again reach the level of 2019 when the logistics pick was in production,” estimates Szymon Szczepanik from Seifert Polska.
Preparations for seasonal peak 2024
Meanwhile, preparations are underway for the seasonal peak because the first one is just ahead of us. Let us remind you that peaks in the automotive industry occur in March, June, September, and December (for some players – also in July).
This involves pressuring Original Equipment Manufacturers (OEMs) to meet sales and distribution goals on a quarterly, semi-annual, and annual basis. March is also the end of the fiscal year in Japan, and there is great pressure from Japanese producers to fulfill their plans – reminds Krzysztof Szeligowski.
Seasonal peaks from a manufacturing perspective
Various products from our portfolio have their “seasons”, e.g. a steel tipper for the construction industry is usually needed immediately after winter, a tipper for agricultural products – from April to September, vans often have their peak before Christmas, and the curtain is sold throughout the year.
Natural declines are noticeable during the holiday season, mainly in August due to the annual production shutdown in companies and the holiday season. In the autumn and winter period, we often deal with orders placed longer in advance, as companies start preparing to implement the newly approved budgets – explains Andrzej Mowczan, member of the management board for commercial affairs at Wielton.