How Chip Shortage Affects Car Production

Since 2020, we’ve been dancing to the same sad song. Whenever we want to buy a car, no matter if it is new or pre-owned, the dealer tells us that the chip shortage has impacted their bottom line and inventory, so we can no longer take advantage of past deals and discounts because they became nonexistent. In addition, we should expect delays and higher prices if we need a car in this economy.

By now, the majority of Western consumers have heard the words “delays,” “transport bottlenecks” and “chip shortage,” so many times that they have become experts in supply chain disruptions, but in case, things are still unclear, this is an update.

Related: Chip Shortage Won’t End Until 2024, Says Intel CEO

Chip Shortage: How Did The Automotive Industry Get Here?

In the Spring of 2020, various countries in Asia-Pacific that are major production and export centers went into Coronavirus lockdowns. Factories and plants shut down and workers were sent home, while production was put on pause. During that period, the pandemic reached the Western Hemisphere and automakers and dealers canceled or stopped placing new car orders because they feared they will be left with an extensive inventory. But, they can’t be blamed for these actions because their market strategy was based on experiences.

During the previous political economic and social crisis, consumers stopped buying cars and sales slowed down significantly. Plus, with millions of employees working remotely, who can blame automakers for thinking that people won’t need cars too soon?

After the initial shock in the early months of the pandemic, the situation changed consumers and returned to their dealer looking for new cars. However, at this point it was already too late because automakers compete in an already tight market against the electronics industry who needed semiconductor chips for mobile phones, computers, video games and home devices.

Furthermore, chip manufactures had to overcome their own challenges because they couldn’t get access to raw materials, which too often were found on separate continents and countries that were completely lock downed. Moreover, even when they started production, pent-up demand for mobile phones and computers was so high that chipmakers couldn’t keep up the pace with the industry; Thus, they had to hierarchize customer requests. Naturally, they prioritized the contracts with the electronics industry, which consented to premium prices for the silicone wafers.

What’s The Impact Of Chip Shortage On The Automotive Industry?

Although inventors have improved in 2022, there’s still a long way to go for the automotive industry to overcome this crisis. Intel’s CEO Pat Gelsinger told CNBC that the global shortage of semiconductors will continue into 2024. On the positive side, General Motors CEO Mary Barra said back in December 2021 that she was “cautiously optimism” about the semiconductor chip shortage. Despite Barra’s positive tone, some experts were more speculative about the situation. For example, consulting firm AlixPartners sounded the alarm in 2021 about the state of the automotive industry when it projected that the chip crisis will cost the global auto industry about $210 billion in lost revenue in 2021. AlixPartners also established that 7.7 million units of production will be lost in 2021. To make matters worse, various automakers have announced that they will postpone the release of several models and remove key features on other vehicles.

Related: Here’s How The Global Chip Shortage Has Benefited The Used Car Market

How Chip Shortage Affects Car Production

Automakers have tried to mitigate the effects of the crisis by reducing or even shutting down production of lower-margin cars and unpopular models. Another strategy employed was that of going ahead with the production of new vehicles, but keeping them in parking lots until chips become available again. The Verge reports that Tesla was even more innovative. As such, the American automotive multinational rewrote its vehicle software to support alternative chips. Meanwhile, CNBC reports that General Motors temporarily suspended heated seats on certain cars, although a retrofit option will be made available at a later date.

Elsewhere, Hyundai initially survived on the chips it stockpiled, but later, it reduced operations at some plants. The Volkswagen Group was hitting far worse, and it had to temporarily close the Bratislava, Slovakia plant that was building the Touareg, Porsche Cayenne, and Audi Q7. Likewise, Stellantis plants in the United States and Canada had to slow down production. Equally important, Toyota announced that additional production lines will be shuttered in Japan in the months of June and July 2022.

Finally, last March, the Mini plant in Oxford was also closed for two weeks. In this context, it is impossible to imagine that any automaker is safe from the global microchip shortage, but there are some early signs of recovery.