Chip shortage could cost automakers up to $110 billion
S E E D E D C O N T E N T
The auto industry will suffer a $110 billion hit to revenues this year due to the ongoing shortage of semiconductor chips, according to a new analysis from AlixPartners consulting firm. That is a steep increase from January estimates of $60 billion.
With no clear resolution in sight, the industry will likely produce about 3.9 million fewer vehicles than originally planned for all of 2021, the firm said. The chip shortages are not only curbing production of current models but may also force delays in the rollout of some 2022 products.
Consumers, meanwhile, already are finding it harder to find the vehicle of choice — or any vehicles, in some cases. At the same time, prices are surging.
"The next few weeks should be the worst," said Dan Hearsch, managing director with AlixPartners, adding that the timeline could extend "into next year before things have any chance of clearing up. And that's if nothing else goes wrong."
The crisis is an inadvertent result of the Covid-19 pandemic. When much of the world went into lockdown in spring 2020, auto industry planners expected sales to plunge to Great Recession levels. Indeed, the numbers dipped by as much as 40 percent in March and April, but demand unexpectedly rebounded by late summer. Sales this April reached record levels for a number of manufacturers.
But automakers had sharply cut parts orders, and semiconductor manufacturers had found a willing, alternative market in a consumer electronics industry struggling to keep up with surging demand for web cameras, smartphones and gaming consoles. Now, there's not enough capacity to go around, and the auto industry has drawn the short straw.
Complicating matters, the ice storm that shut down much of the Texas electrical grid also affected chip plants in the state. A serious fire took down a major Japanese plant. And there's even been a drought in Taiwan forcing production cuts in one of the world's largest sources of semiconductors.
"For a while it felt like a badly written comedy, the size and scale of the things breaking," said Hearsch. "Now, we're starting to feel the pain."
Automakers large and small, from General Motors, Volkswagen and Toyota, to Bentley, Aston Martin and Ferrari, have been affected. They've been forced to slow production at factories around the world and, in some cases, to halt assembly lines entirely.
The crisis has hit some of the best-selling and highest-profit vehicles in the industry, such as the Ford F-150 pickup. The second-largest automaker posted a big jump in first-quarter earnings — but Ford warned the coming months will not be nearly as good, with more than 1 million vehicles likely to be slashed from its own 2021 production forecast.
Dealers are feeling the pinch at a time of year when they normally see their biggest surge in sales.
Such cuts have compounded shortages caused by the two-month shutdown of the entire North American automotive production network in spring 2020 — along with similar closures abroad.
Dealers are feeling the pinch at a time of year when they normally see their biggest surge in sales. The industry likes to maintain an average of 60 to 70 days' worth of products on dealer lots in order to ensure customers can quickly find the vehicle they're looking for. But inventories are down to a 30-day average for showrooms operated by AutoNation, and are falling fast, Mike Jackson, the CEO of the country's largest dealer chain, told NBC News.
Automakers and auto dealers have tried to compensate for those shortages by raising prices and curbing the incentives that, during the depths of the pandemic topped $10,000 on some pickups and other high-cost models.
There are as many as 1,400 chips in a typical 2021 automobile, according to Hearsch.
Manufacturers are looking for ways to cope. Where possible, they are shifting semiconductor supplies from low-volume products to high-profit models. They're also modifying some products, even leaving out features that might otherwise delay production — a process known in the industry as "shy-build." Some GM pickups are rolling out without the engine control system that helps add another mile per gallon. Ram has stopped equipping pickups with camera-based rearview mirrors.
But such steps can only go so far, said Hearsch, adding that a big concern for the industry is the likelihood that some of the 2022 models set to go into production in the coming months will be delayed — perhaps indefinitely.
"There are simply going to be instances where they won't be able to get all the parts," he noted.
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My first car, when I was 16, a used three-year old 1950 Ford Custom Coach, (mine was beige with a brown roof) manual transmission stick shift mounted on the steering column, wind-up windows, NO CHIPS, NO ELECTRONICS (except a manual 5-push-button A.M. radio as in the picture), required a person with brains and electronically unassisted driving skills to drive in Ontario's 5 months of snowy/icy winter, and the rest easier driving. Oh, how I loved that car. Nobody really needed chips, except maybe potato chips . Air conditioning? LOL just open all the windows and drive fast.
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yep, me too. My first car was a 1954 Ford Falcon 3-speed on the column and like you the only electrics was the radio (am only). First thing I did was double the electronics by adding an 8-track. Woo Hoo!!!!
So the ronavirus caused a chip shortage which in turn is causing a new car shortage. On the flip side of that coin, working from home the past year and a half (that's been really nice, longest commute is from my 2nd bedroom turned office to the kitchen for another cup of coffee) I think I've put less than 2000 miles on my current car. I had plans on purchasing a new car sometimes next year (right before I retire) so this really doesn't impact me much but as my current car only has 84k miles I may hold off a bit longer.
The only way that this affects me is that I work for a Tier 1 supplier and we need microchips for our products. I know that they've simply adjusted production in certain plants... I just don't know for how long. I also know that one of the Chrysler plants in my area has been doing layoffs in 2 week intervals, each line [and maintenance people for those lines] gets a turn so to speak.
While my 2012 Fiesta does have electronics, it's not to the extent that currently produced vehicles have and I'm glad for that. The rest of the vehicles we own are a lot older; a 73 Ford F100, a 79 Firebird, and we're about to buy my daughter a 2002 Explorer Sport Trac and that truck has minor electronics compared to today.
And while you guys might think that there weren't electric items on your vehicles... there's actually more than you're probably thinking, albeit extremely simple by comparison to today. You still had fuses, relays, a generator, starter, likely a voltage regulator, the headlights were electric, radios [as you've mentioned], clock, distributor, points, condenser and cigarette lighter.
I understand that a lot of the modern amenities on these new cars is making people dumber on the road and their ability to drive a vehicle has gone out the window. However, with federal government regulations, the automakers are being forced to use these products in the name of safety.
No chips or electric parts only pure horsepower with the occasional road apple.
I had and rode an Appoloosa long before I drove or owned a car.
Aw! I love Appoloosas! My experience with one was awesome. It was in the Tahquamenon Falls area and he was a "teenage" black and white Appoloosa named Chief.
Chip shortage doesn't just apply to cars. It applies to all electronics right now. A Sony BluRay player I bought on May 28 2020 via Amazon for $198 now costs $249.
Yeah, I didn't think about all that. I only have my work laptop and DVD players that are older than my kids.
Worst of all, there is no stock of Playstation 5 to be found anywhere. This is the end times I tell you!
My son keeps telling me this... It seems to be an issue for him. I keep telling him adulting is hard.
I keep trying to get my kids to understand that too.
Tell me about it.