It is no secret that the worldwide chip shortage has greatly affected the production output of semi-conductors. It has hit the automotive industry particularly hard. One of the main reasons being that there are, on average, approximately 1000 chips in every modern day vehicle! These components are required for driver safety sensors, processors to operate infotainment systems, tire pressure monitoring, operating power seats and the list goes on.
The shortage is hitting so hard, plants are now temporarily shutting production to avoid piling the number of vehicles to the side that cannot be shipped to dealerships. In fact, all you need is 1 critical missing chip and the vehicle needs to be sidelined. This week alone, 14 GM assembly plants in North America halted production and the F-150 plant, America’s best-selling vehicle, seized operation. Moreover, Toyota who has been known to have accumulated a reserve of chips as a preventative measure and was told they were hit the least by this shortage halted production at certain plants this month. Toyota’s cessation on production cost the automaker a whopping 360,000 new vehicles from being produced worldwide, 80,000 of which in North America.
Lead times for certain chips have drastically jumped to the point where some automotive manufacturers have made the decision to deliver vehicles with missing features. General Motors has had to temporarily remove the push button start on their full size SUVs for 2022, BMW has removed the kick to open tailgate feature on some of their models and many more brands have had no choice but to remove important but not critical features from their vehicles in order to deliver cars to their patiently waiting customers. With some vehicles, lead times for specifically crucial chips can now exceed one year. For actual critical chips, lead times for certain vehicles are exceeding over 1 year now. If you are looking for a new Corvette, good luck! Lead times are now exceeding 2 years before you can get your hands on one.
What caused this microchip shortage phenomenon,? Where does the automotive industry go from here? How long do we anticipate this shortage to last?
WHY THE SHORTAGE?
Due to COVID restrictions, semi-conductor manufacturers scaled back production either in anticipation in a drop in consumerism or because of plant production halts. On the contrary, the demand for electronics had skyrocketed and the priority initially went towards electronic goods such as laptops and cellphones as most white collar workers began working from home. The automotive industry was left a victim and suddenly found itself getting the short end of the supply chain stick, shedding light on the fragility of the chain and leaving automakers to rethink future strategies in lieu of marketplace shift.
OPTIMISM NOW LOST
Although some analysts forecasted an optimistic return to normalcy by year’s end, it appears now safe to say that this was a false assumption. The chip shortage will have a ripple effect for another year at the very least. With many around the world now fully vaccinated, cases are still increasing due to the delta variant and many countries where these semi-conductor chips are being fabricated are entering new lockdown measures. Certain semi-conductor manufacturers have confirmed that we will likely catch a slight breath by the end of 2022. Many of the countries where semi-conductors are produced have initiated or continued to implement lockdown measures. There is slight hope for some manufacturers who may be able to catch a break by the end of 2022.
WHERE DO AUTOMAKERS GO FROM HERE?
It was not difficult to predict the impact this shortage would have on automakers and now tires are yet another part where the spotlight is being shone. The lead times and prices for tires have increased considerably. For those living in climates, which require winter tires and with winter around the corner, we suggest getting tires as soon as possible.
With regards now to your next car purchase, be patient as this shortage will likely affect the next car you purchase. In fact, all automakers are now hurting. Unfortunately for them, there is no plan B for critical parts. As for less critical components, automakers are now scaling back on features that were once supposed to be a compelling feature for those vehicles.
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