Automakers are building up vehicle inventories, especially in markets in Asia, as a hedge against supply chain disruptions caused by the war with Iran, reports Axios.
While an on-again-off-again deal to reopen the vital Strait of Hormuz to reinstate flows of oil, natural gas and fertilizer hovers in the background, the effects of the war on the automative manufacturing industry are likely to persist for some time. It has limited access to key raw materials needed to produce vehicles, including naphtha used to make many kinds of plastics, for example.
Japan and Korea, which are heavily dependent on naphtha supplies from the Middle East, are particularly vulnerable, says The New York Times.
Ordinarily, carmakers try to be disciplined about matching production to demand, so they’re not forced to unload vehicles at a discount, but some automakers are building up inventories while they can. That will put a strain on their balance sheets, as inventory is highly capital intensive.
While the automotive industry learned long ago not to build more cars than consumers are willing to buy, manufacturers are also wary of getting caught flat-footed as they did during the COVID-era semiconductor shortage, Axios says.