Supply chain setbacks will put brakes on auto sector this year

The semiconductor shortage issue and supply chain constraints that have plagued the auto industry are unlikely to be resolved this year and the situation may improve only in 2023, according to Mercedes-Benz India Managing Director and CEO Martin Schwenk.

While demand for the company's products continues to be buoyant with order book size increasing, he said there is a concern over the global economic uncertainties and geopolitical crisis having an impact on India, thus putting a question mark over how things would be in the next six to 12 months. "The supply situation, unfortunately, has not improved. We still have shortages of semiconductors. We have congestion in the shipments and harbours. We have missing components in our production. So I would say unfortunately, the future remains very hard to predict as well," Schwenk said in an interview.

Elaborating on the impact of the issue, he said, "We have significant supply constraints still in our entire chain, which limits us in delivering as many cars as we would have wanted at the moment. It still puts us into long waiting periods for most of our models. That's the unfortunate situation at the moment."

Stressing that this will not change during the year, Schwenk said, "I don't see that improving. If anything, then maybe next year, but not this year. I don't foresee any improvement."

Commenting on the global economic uncertainties and geopolitical crisis, he said, "The level of instability has not improved. Things have even gotten more volatile, even compared to say, three, four months ago."

Citing hiking of interest rates by many central banks, Schwenk said this raises a lot of questions regarding the economic situation in the short-to-medium term and how it could impact business.

"I think in that sense, there is a lot of uncertainty in the global picture. Of course, the Ukraine-Russia war has increased that uncertainty as well. Stock markets have reacted. There's a lot of uncertainty and it's actually worse than it was three, four or five months ago," he said. In India also there is a similar trend in the stock market and the RBI too has raised interest rates, he added.

"So, the global situation to some level, is trickling down to India but I cannot see it at the moment in our actual operations. However, it creates a couple of question marks now for the next six to 12 months," he said.

So far, he said, Mercedes-Benz India has not not seen that trickling down to consumer behaviour, at least not in the luxury segment. On the demand side, he said the company continues to witness its order book increase, including in June compared to the previous month and it has over 5,000 open orders.

"The consumer climate has not shifted to the question mark yet at this stage. So we see very strong demand for our products," he added. When asked if there is a fear that the global uncertainties and external factors might impact consumer sentiments here in India too, he said, "We have to monitor what's happening. We have inflation topics, we have pricing topics. So we were forced several times to increase prices, mostly because input cost was going up. So we had to some extent, pass that on. Pricing has suffered in that sense."

He further said, "I would hope that we have enough growth momentum to offset that, because there is a demand, and there is a strong positivity in the business community itself, which is, to a large extent, based on the successful couple of last months and quarters."