How current war is impacting global and Indian auto industry
Today when you open TV or newspaper, everywhere is news about war. Specially the big tension going on in Middle East between US, Israel and Iran right now. When we see this on news channel, we mostly think it is only a political problem or military problem. But actually, this fighting is giving a very big headache to business market everywhere in world. And the biggest hit is taking by the car market, including our own Indian auto industry.
Many normal people ask me, “If war is happening in some other country far away, why my new car delivery is getting late? Or why the car price is going up in showroom?” It is a very good question. Everything in this modern world is connected like a big invisible chain. In this simple article, I will explain you how this current fighting is disturbing the auto industry globally and what is the direct effect on our Indian car brands.
The Main Problem: Shipping Route is Blocked
To understand the main problem, first we have to look at the world map. There is a very important sea route called Strait of Hormuz and the Red Sea. From this narrow water road, thousands of big ships pass every single year carrying crude oil, car parts, electronics, and full ready cars.
Because of the war, missile attacks, and drone strikes, this water road become very dangerous. Big global shipping companies are very scared for their ship and crew. They say, “No, we will not send our ship from this short route, it can blast.” So what they do? They take the ships from a very long back route, going all around the continent of Africa (Cape of Good Hope).
Because of taking this long route, two very bad thing happen. First, the ship take 15 to 20 days extra time to reach the destination. Second, the cost of sending one container become double or sometimes triple! Also, insurance company are asking for very high premium money because of the war risk. All this extra transport cost will finally fall on the head of the end customer who is buying the car.
How Global Car Companies are Suffering
Because the ships are taking so much extra time to travel, the global auto industry is crying. In Europe, big famous companies like Tesla, Volvo and Stellantis had to stop their factory production lines for some days. Why they stop? Because the small parts they order from Asia did not reach the factory on time!
Imagine you have a full factory ready, thousand workers are standing on duty, but the small computer microchip or one plastic bumper is stuck in a ship somewhere near South Africa. You cannot finish making the car. This is called a supply chain break. Also, Chinese car companies who sell lot of EV and petrol cars in Middle East are facing heavy loss. They cannot safely deliver the cars to their dealer in that war area, so their sales are dropping fast.
Crude Oil Tension: Making Cars Become Expensive
Middle East is like the main petrol pump of the whole world. When any war happen there, the price of crude oil directly jump up in share market. Recently it cross $80 and going near $90 per barrel.
You will think, “Okay, petrol price will increase at pump, but how it effect the car manufacturing?” Listen carefully. Making a new car take a lot of heavy energy. Melting iron for steel, making aluminum, and doing the oven bake paint job take heavy electricity. Also, a modern car have almost 150 to 200 kg of plastic inside it (dashboard, door panel, bumper, wires). Plastic and rubber tyre are basically made from crude oil chemicals! So when crude oil become expensive, the raw material for making car automatically become very costly. The profit margin of car company go down, and they have to increase showroom price.
What is the Impact on Indian Auto Industry?
Now let us talk about our own country. India is a very strong and big market, but we are also feeling the heat of this global fire. Here is how it effect us locally:
1. Car Export Tension
Indian companies don’t just sell car to Indian public, they export a lot to outside world. Companies like Hyundai and Toyota make cars in India and send them to Middle East countries. Almost 25% of total Indian car export go to that region. Because of this war and shipping block, our export business is in heavy danger. Thousands of cars are waiting in port. But some companies like Maruti Suzuki are little safe because they mostly sell their export cars to Africa and Latin America, so they don’t depend only on Middle East.
2. Auto Parts Makers in Trouble
India make very good quality auto parts like gears, brakes, and engine components. We sell them to big brands in Europe. Now because European car factories are working slow, they are not ordering fast from India. Plus, the shipping cost from India to Europe become so high that our parts are becoming expensive for them to buy. Many factory owners in India are doing worry about their next orders.
3. The Tyre Industry Problem
As I told before, tyre is made from rubber and carbon black, which direct come from crude oil. Because global oil price jump, Indian tyre companies have to spend more money to make the same tyre. Soon, they might increase the price of new tyres in aftermarket.
4. Will Petrol Price Increase in India?
This is the biggest fear for any Indian middle class man. India buy almost 88% of its crude oil from outside. If Middle East route is block, how we will get petrol for daily driving? Actually, our Indian government and oil companies did a very smart planning. They did not depend only on Middle East. They are quickly buying extra oil from Russia. Because of this smart move, we have enough petrol stock in our country for many days. We will not see sudden petrol pump dry up. But yes, if war continue for many months and global price stay very high, the government cannot hide the cost forever, and petrol and diesel price might go up little bit in future.
What Should a Car Buyer Do Now?
If you are planning to buy a new car in India, you don’t need to take heavy tension right now. Our local market supply is still running smooth because mostly parts are made locally. But if you want a car model that has high waiting period, the wait might become little more long because some small imported sensor or chip might delay.
To make a long story short, this war is not good for anyone. The global car makers are struggling to get parts, and cars are becoming costly to build. Our Indian export business and transport cost is taking a bad hit. If this war stop quickly, things will become normal and cheap again. If it stretch for long time, then be ready to pay little extra for your next car or spare parts.