You never would have guessed it, but there is a major shortage of semiconductor chips in the market that automakers and other industries rely on. Almost every facet of life uses microchips in some way shape or form. From something as simple as a remote control to something as complex as the phone or tablet you’re using now, it’s hard to ignore such a phenomenon especially if you’re looking to buy a new car.
Modern cars are especially affected by the shortage. Even simple functions like keeping the engine idling or even starting it requires a computer with several microchips. Your engine control unit (ECU) is very important, but it’s not the only thing that needs these little chips. Everything from your air conditioning unit to your power windows requires these delicate electronics.
What is causing the chip shortage?
COVID-19 is perhaps the biggest trigger to these events. The global pandemic is not only affecting the health sector but every other sector that requires people to interact with each other or even be in the same space. You need other people in order to get things going, from sales all the way to production. Manpower is essential in keeping a business running and keeping supply chains consistently flowing. However, due to the pandemic, many people were forced to socially distance themselves away from each other, causing factories to run at a very reduced pace. It also doesn’t help that the demand for online services and the devices that are needed to access these online services increased, putting even more pressure on the already reduced microchip supply.
In March of 2020, countries around the world locked down in an effort to curb the spread of Coronavirus. Several countries went into a recession and other industries had to rethink how to serve customers given social distancing guidelines.
On top of that, only a few global chip suppliers exist in the market and are limited to the Asia-Pacific region, close if not at the epicenter of the Coronavirus, close to China.
There are only a few manufacturers and suppliers of semiconductor chips in the world. Among the few, Renesas Electronics was hit particularly hard due to a fire in its factory. This resulted in reduced production capacity, which the firm has yet to recover.
On top of that, other brands like NXP Semiconductors, Infineon, and Samsung, were forced to shut down in February 2021 due to a winter storm in Austin, Texas. Being such big players in the market, a week’s worth of shutdowns can only result in a pile-up down the supply chain.
Competition is also stiff for the limited supply. As mentioned, semiconductors are used in all sorts of electronics. The automotive industry isn’t the only one relying on the global supply chain, you also have everything from electronics all the way to online services that heavily rely on cutting-edge technology and hardware to provide its solutions to customers.
The industry fired back, but did it backfire?
Online services like AutoDeal’s have made life a lot easier for consumers to buy and even sell their cars. Additionally, dealerships have also worked out ways to launch cars and even get people back into dealerships to make a purchase with models that are tailored to the entry-level market and even aggressive sales promotions. Others, still, are offering home delivery services that can be organized remotely and with minimal social contact. More aggressive demand, however, might result in longer lead times between making the sale and the customer receiving their unit. Considering the time that it takes to assemble a car and ship it, it’s quite possible that a vehicle with a high turnover rate at the dealership could take a few months before it’s available for release.
Many brands have reported lower production outputs due to chip shortages. One of the largest in the world, Toyota, has reported a 15 percent reduction in production due to the chip crisis for November 2021. Prior to this, the company reported a 40 percent reduction in production in October 2021.
Honda has also reported similar production cuts, with production capacities experiencing a 60 percent reduction in August and September of 2021. The brand was able to bounce back in October, stating that the firm was to get back up to 70 percent capacity.
Nissan has also projected a 30 percent drop in production capacity for the month of November 2021.
Mitsubishi mentioned that it will not be able to make nearly a fifth, or about 20 percent, of its production capacity for May 2021.
Mazda reported that it had suspended production in its Thai and Mexico plants for 10 and 9 days, respectively due to the chip shortage. On top of that, the brand also cut back its production in September 2021 for the same reasons.
It’s not just the Japanese brands that are struggling to keep up with production quotas. American and European brands are suffering as well.
Hyundai and Kia have also reported production cuts in their US plants back in August of 2021.
The Ford Motor Company in particular reduced its production capacity as low as 50 percent this year with the current semiconductor allocations. Plants that are responsible for building the F-150, Mustang, and other similar vehicles are operating with increased downtimes.
Similar stories were told for Fiat Chrysler, with extended idle periods.
SAIC Motor, the company responsible for brands like MG, Maxus, and Volkswagen in the Philippines, slashed vehicle output by 200,000 units in April 2021, which is a 3.6 percent overall decrease in production for the firm during that period.
MINI stated back in April 2021 that its England plant suspended production for three days due to the chip shortage.
How will this affect consumers?
Without a doubt, consumers who are buying a car that isn’t in stock will have to wait an extended amount of time before their vehicle gets released by the dealer. Unless the brand has ample stock and allocation, it may take quite a while before more units are allocated to be sold.
Moreover, expect prices to go up for vehicles. Manufacturers are trying their best to make ends meet even amidst high semiconductor prices. Higher costs result in higher prices for the consumers and expect the cost of a car to go up slightly by a few percent.