Market Talk: Skids Underneath Automotive Sector Slow Manufacturing Output

The output of automotive companies, which is Hungary’s largest manufacturing segment with a 22% share of the overall manufacturing sector in March, fell by a year-on-year 13.3%, according to the latest economic indicators compiled by the country’s Central Statistical Office (KSH). The semiconductor shortage and supply chain problems caused by the aftermath of the pandemic and the Russian invasion of Ukraine have dented output.

The sputtering performance of the sector also dragged back Hungary’s headline industrial output in March, which slowed to a growth of 3.6% compared with February’s 4.8%. Adjusted to the number of workdays, overall output climbed 4.2%.

“At the moment, the combination of the restrictions due to the coronavirus, the semiconductor shortage, and the uncertainties in the supply of components due to the Russo-Ukrainian war are having an impact on the automotive industry worldwide, including Audi Hungaria’s production,” Audi Hungaria Communication told the BBJ.

“As of today, the global chip shortage is still causing the main concerns,” Zsuzsanna Bonnár-Csonka, head of corporate communication at Magyar Suzuki Zrt., agreed.

After KSH published the March figures, Magyar Bankholding chief analyst Gergely Suppan told state-owned news agency MTI that supply chain interruptions remain a significant risk, not only for the automotive sector but for companies that turn out products as diverse as aluminum or artificial fertilizer.

Also talking to MTI, ING Bank senior analyst Péter Virovácz said the slowdown was “hardly a surprise,” given the series of automotive industry scale-backs since the outbreak of the war as companies faced parts shortages.

Zsuzsanna Bonnár-Csonka

Mitigating the Impacts

Audi Hungaria says it is committed to mitigating the negative impacts of the current situation.

“We are doing everything we can to minimize the impact of these external factors on our company and our employees as far as possible. Audi Hungaria has several suppliers in Ukraine. The conflict has an impact on our suppliers and our supply systems, and thus on the production of our engine and vehicle plants,” the company told us.

Nevertheless, Audi Hungaria says that production at its Hungarian plant is stable as the company has temporarily adjusted output to the 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 their utmost to stabilize production at their plants,” Audi Hungarian added.

Magyar Suzuki is similarly cautious and mindful about disruption in the market. However, its Hungarian plant is in a somewhat better position than Audi as it has no Tier 1 suppliers in the affected areas. But that does not mean there are not still supply chain challenges.

“Our Tier 1 suppliers have several Tier 2 and 3 suppliers in Ukraine, and they are making huge efforts to maintain the supply of parts,” Bonnár-Csonka said.

Suspended Shipments

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

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

With supply chain issues affecting new auto output in Hungary, a trend that is common in several other European countries, used car sales were up by 12% in March, according to Das Weltauto, the second-hand auto business of vehicle importer Porsche Hungaria.

Citing figures compiled by Datahouse, it said Opel was the most popular brand among used car buyers during the period, with Volkswagen the runner-up, followed by Suzuki. Das Weltauto Centrum sales director Péter Tóth said used auto prices are on the rise, climbing as much as 15-20% for some models, as the supply of new cars declines, MTI reported.

Hit by pandemic lockdowns and then the war in Ukraine, globalization appears to be giving ground slowly to localization, with much talk about shortening supply chains and near-shoring operations. However, the difficulties of the situation cannot be underestimated, as is clearly shown by Magyar Suzuki’s response.

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

The Budapest Business Journal reached out to all the leading automotive manufacturers in Hungary to probe the current market sentiment. Only Audi Hungaria and Magyar Suzuki had responded to our approaches at the time of writing.

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