Semiconductor shortage: How the automotive industry can succeed

During the earliest days of the COVID-19 crisis, automotive headlines focused on the huge drop in vehicle demand. But for more than a year now, concerns have shifted to the supply side. Although vehicle orders have surged to unexpected heights, a shortage of automotive semiconductors is forcing OEMs to close production lines or remove some popular features, such as heated seats, from their offerings.

We first explored the automotive chip shortage in a May 2021 article, noting that a quick fix was likely impossible. The situation has worsened since then, and the recent drop in automotive revenues is largely occurring because OEMs and Tier 1 suppliers cannot procure sufficient quantities of chips and must delay vehicle production. While manufacturers of laptops, white goods, and other devices have also cut production because of semiconductor shortages, the repercussions in the automotive industry have been more severe. Some premium OEMs were able to safeguard profits with selective manufacturing and sales strategies designed to optimize margins. This strategy, however, may result in a shortage of lower-margin vehicles and could cause extreme fluctuations in demand for automotive chips.

Russia’s invasion of Ukraine has introduced further uncertainties to both the semiconductor supply chain and automotive demand. For instance, Ukraine supplies 25 to 35 percent of the world’s purified neon gas, and Russia supplies 25 to 30 percent of palladium, a rare metal used for semiconductors.

Another wrinkle: many semiconductors are transported by air, but transport costs have significantly increased while available shipping volume has dropped. And yet another problem: OEMs have been unable to obtain critical vehicle components, such as wiring harnesses, and have reduced their production volumes in response, which has added even more uncertainty by decreasing demand for some semiconductor-based components.

Given the ongoing instabilities in the semiconductor supply chain, the automotive industry should consider refining its strategy. Companies can start by focusing on the implications of three critical activities that form the foundation for strategic shortage management: the creation of strong technology maps, reliable short-term demand planning, and guidance for long-term demand planning.

Factors behind the escalating challenges in semiconductor supply

More than two years into the pandemic, the gap between chip supply and demand has widened across all semiconductor-enabled products. While sales of all consumer goods plummeted in the first half of 2020, and automotive sales dropped precipitously—up to 80 percent in some locations—demand rebounded more than expected later in the year, continued to grow in 2021, and remains strong today. The high-tech sector, in particular, has seen sales volumes increase, partly because of changes wrought by the COVID-19 pandemic. The growth in working from home, for instance, has contributed to a greater demand for wireless connectivity and PCs. These market shifts have rippled back to affect demand for semiconductors and other components. Across almost all industries, the demand for semiconductors in 2020 and 2021 exceeded prepandemic forecasts (Exhibit 1). And this means automotive

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Pennsylvania drivers spend more on repairs as the chip shortage cuts off supply of new cars

“I have customers that want new cars. It’s just, what they want is not available, or it’s a year behind.”

  • An-Li Herring/WESA

Used cars for sale on a lot at a dealership in Doylestown, Pa., Friday, Feb. 4, 2022.

Matt Rourke / AP Photo

Used cars for sale on a lot at a dealership in Doylestown, Pa., Friday, Feb. 4, 2022.

As car production continues to lag amid the global chip shortage, the demand for auto repairs has shot up.

With fewer new vehicles available to buy, customers have opted to invest more in the cars they already have, said Mike Kirsch, the head mechanic at Brunner’s Garage in the South Side Flats.

“[We’ll] look at their car and say, ‘Well, your car is going to be, I don’t know, $500, $700, $1,000 to repair,’ whatever the number is. And they will look at it and say, ‘Well, it’s an older car. Maybe I’m going to go buy a new car,’” Kirsch said. “But there’s just no new car out there right now to buy. I have customers that want new cars. It’s just, what they want is not available, or it’s a year behind.”

Pushed to keep their old vehicles, he said, customers end up “spending a lot of money on regular maintenance: brakes, tires, some check-engine lights. People are spending a thousand, fifteen-hundred dollars [on] their car to keep it for another year at least.”

Mike Kirsch is the head mechanic at Brunner's Garage in the South Side Flats. He said the global semiconductor shortage has increased the demand for vehicle maintenance by limiting the supply of new vehicles that require less service.

An-Li Herring / 90.5 WESA

Mike Kirsch is the head mechanic at Brunner’s Garage in the South Side Flats. He said the global semiconductor shortage has increased the demand for vehicle maintenance by limiting the supply of new vehicles that require less service.

Wait times have gone up at Brunner’s and nationally because supply chain disruptions continue to delay parts deliveries. Labor shortages have also helped to bump up by 1.5 days the average turnaround time at automotive repair shops across the country, according to an August 2021 survey. The research shows that one in every four automotive repair shops said a lack of auto technicians was a primary cause of service delays.

Kirsch said the work shortage is a long-building problem that reflects the overall aging of his industry.

“All the technicians are all my age: They’re all old people now. They’re all getting ready to retire. And a few of the garages around here … they retired [and] closed up,” he said.

Auto tech shortage

While Brunner’s Garage is fully staffed today, Kirsch noted that the four-employee operation has struggled to

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Toyota struggles with chip shortage whilst Nissan advances

Toyota minimize its international consolidated profits forecast to 8.3 million automobiles for the present fiscal 12 months, from an earlier outlook of 8.6 million cars. It also expects to lose output of among 100,000 and 200,000 cars in March because of the semiconductor bottlenecks. All explained to, Toyota stated it could get rid of output of up to 480,000 autos from January as a result of March.

As just lately as mid-January, Toyota was concentrating on a fiscal year output system of 8.9 million vehicles. Past calendar year, when it was a lot more self-assured about chips, it expected to churn out 9.3 million motor vehicles. It has now revised its outlook to 8.5 million.

“The strategy for 8.5 million units is based on our having into account all the supply shortages for pieces that are presently predicted and conservatively lessening the forecast,” the enterprise reported.

With the outlook for recovery unclear, Toyota is examining generation plans on a “every day basis.”

But Toyota’s latest struggles have overshadowed the fact of its fundamentally strong earnings.

In the Oct-December fiscal third quarter — even as its profit fell — the firm nevertheless posted an working income that was extra than double the merged revenue of Nissan, Honda, Mazda, Subaru and Mitsubishi. It also sold just about as lots of motor vehicles as people Japanese rivals mixed.

In spite of the 21 % tumble in its operating gain, Toyota nevertheless sent a 10 % margin.

In addition, Toyota’s gain targets for the fiscal year ending March 31 characterize the second-maximum earnings on report at the organization, coming in just shy of its all-time superior.

At last, the world’s biggest automaker stored its global retail sales forecast unchanged at 10.3 million motor vehicles for the fiscal 12 months ending March 31, together with Daihatsu and Hino gross sales.

That would be an raise from 9.9 million automobiles in the past fiscal year and drop just shy of the history 10.6 million motor vehicles bought in the fiscal 12 months ended March 2019.

Embattled Nissan, on the other hand, is rebounding from two straight yrs of losses and rebuilding from a small base. Though restricted source has capped revenue quantity at Nissan, it has also served Nissan keep down incentives on the vehicles it can supply, bumping up profitability.

Nissan’s Gupta said a extended-time period repair for kinked supply demands a concerted energy amongst automotive and non-vehicle sectors to enhance chip source and demand as considerably as 10 a long time into the foreseeable future.

“The much more semiconductors we get, the more expansion we will have,” he reported. “Our business enterprise plan will be driven by how a lot of cars we can make, fairly than how numerous cars we want to provide.”

Nissan at first qualified global sales of 4.4 million automobiles this fiscal yr. It now sees 3.8 million.

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World-wide microchip shortage in automotive field reinforces have to have for far better offer chain scheduling

(© Michael Schwarzenberger – Pixabay)

The global scarcity of microchips is severely impacting the automotive sector with no quick or easy resolution in just sight. Though this supply chain disruption has evoked the awareness of world leaders, legislators, and market industry experts, the trouble persists. Just put, there are not adequate chips to satisfy desire. Some limited-term strategies may possibly aid have losses for stakeholders, but most classes uncovered need lengthy-expression improvements in tactic and source chain arranging. Thankfully, placing sophisticated technological know-how in spot can help substantially mitigate the effects of related provide chain disruptions in the future.

How negative is the present chip lack?

As automobiles have pretty much pretty much come to be smartphones on wheels, semiconductors have turn into increasingly critical for a selection of programs, from fuel-force sensors, to electronic speedometers and artificial intelligence-driven equipment that help with parking, discovering the subsequent gas station, or alerting the driver when an oil modify is required. Without these little silicon wafers, the auto industry’s write-up-pandemic restoration has stalled, as makers are not able to finish orders. By some estimates, the effects on world creation volumes is anticipated to be about 7-to-8 million models, and McKinsey reviews that significant carmakers have presently announced significant rollbacks in their output because of to chip shortages, lowering anticipated income for 2021 by billions of dollars.

The place did all the chips go?

The issues began in the early months of the COVID-19 pandemic, when vehicle gross sales plummeted as a great deal as 80% in Europe, 70% in China and nearly 50% in the U.S. The lack of demand from customers for new cars brought on factories to near, personnel to be sent home and orders for components and parts – this sort of as semiconductors – to be cancelled. This may well have been shortsighted. Tech Republic stories that when automotive OEMs shut down, cancelling orders, they remaining disgruntled chip suppliers keeping stock and surplus capacity. At the very same time, some sectors wanted additional semiconductors to fulfill exploding need from housebound customers and remote staff. Gross sales spiked for PCs, tablets and customer electronics, as students and employees established up workstations at property and men and women consumed additional streaming media. Those people brands had been joyful to snap up the chip stock. Now, they are not letting go.

Who is harm by the chip shortage?

The affect is significantly reaching, further than just pissed off auto buyers. When factories close, jobs are lost, crippling the financial state. Market Week reviews on the political ramifications, expressing, “The chip shortage owing to manufacturing snags has had a huge effect on the U.S. overall economy, hindering car creation and driving costs greater.” The White Dwelling has held conferences with U.S. semiconductor industry executives and European leaders to test to ease the present-day chip crunch and operate on extended phrase alternatives.

Improvements are becoming set into motion. UK’s Fleetnews suggests, “The sector is evidently navigating via a period of disruption. Total, supplied

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Chip Shortage, Revenues Down, Electrification & Jobs

Admittedly, right here at the Dashboard we have been publishing a lot about the torrent of troubles facing the Automotive Marketplace. Sales in China are down. Supply chains proceed to be a standard mess of delays. Plants keep on to run at decreased capacity (at very best it seems). And on and on.

The sector information has not gotten better. The most latest experiences are now predicting that the chip shortage will final into 2023. Of class, retain in brain, that as electrification boosts, the need to have for chips increases. Revenues are down all more than the sector. GM third quarter profit was down 41% from the prior 12 monthsVolkswagen was down as effectivelyStellantis much too: revenue down 14%.  With no stock, with income down, with purchasers left with very little to purchase, not only are the OEMs down, but their suppliers are of program down as properly (it would be challenging not to be).

The deficiency of motor vehicles has an unsurprising affect on employed vehicle income: they are equally pressured by absence of stock. If individuals can’t buy new vehicles, they are not able to trade in aged cars. And, they may well extremely very well be buying made use of alternatively of new mainly because of what may possibly be readily available. In the earlier 18 months, made use of car prices are up 40%. The price ranges continue on to go up. A person forecast does not see the applied car market normalizing until “well into 2022”.

In other news, the transfer to electrification marches alongside. But for the present-day do the job drive, that is troubling news (as it is in a whole lot of transitioning industries). Electric powered automobiles have less relocating sections and are, arguably, less difficult to assemble, demanding fewer workers. A single report has task losses by now above 70,000, just for OEMs. Add in suppliers at every single tier and 1 can quickly compute some very massive quantities of work reductions. Although this will arguably aid the market cut down costs and raise profits, it will depart scores of individuals around the world without work.

There are, of program, new employment as well. But they have to have new and distinctive competencies that are not necessarily simply acquired. In Alabama by itself, there are presently thousands of open up employment in the automotive sector that are waiting to be loaded. This is steady with other industries as employees continue to choose and opt for amongst the myriad of positions offered.

Let’s increase to these problems: who is all set for an aluminum scarcity? Multiple reports are now declaring that magnesium is likely to be challenging to supply in 2022. At the very minimum, this will induce product selling prices to enhance. Such raises routinely have a cascading affect on costs all the way to the showroom.

Any way just one looks at it,

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Hyundai’s quarterly earnings hit by chip shortage

SEOUL — Hyundai Motor claimed it expects it will choose a lengthy time to get back again to usual chip provides immediately after the automaker described a internet profit of 1.3 trillion received ($1.10 billion) for the July-September quarter.

In the similar interval a 12 months previously the team, which incorporates Kia, posted a loss of 336 billion gained when it was hit by a one-time price associated to motor high-quality challenges and remembers.

“Hyundai Motor expects that on-year sales expansion may possibly gradual down for the rest of 2021 amid adverse enterprise situations brought about by the unstable supply of semiconductor chips,” the organization said in a statement on Tuesday.

Hyundai explained the chip lack would probable go on right up until the end of this year or subsequent yr and it envisioned it would consider a extended time to get back to regular.

“The chip shortage will very likely continue into the fourth quarter but provide ailments would partly improve in the fourth quarter as opposed with the 3rd,” Hyundai Motor’s Government Vice President, Seo Gang Hyun, said in a phone with analysts.

The microchip disaster, induced partly by surging demand from customers for laptops and consumer electronics during the pandemic, has shuttered car manufacturing lines globally and forced automakers to slash cargo forecasts.

Hyundai beforehand claimed its product sales development may gradual in the 2nd 50 % thanks to challenging small business circumstances, such as the unstable source of automotive chips.

The company claimed it had lower this year’s cash expenditure paying out by extra than 10 % to 8 trillion gained to improved reply to uncertainties, which include the coronavirus pandemic.

It revised up this year’s car-enterprise functioning margin revenue to 4.5 p.c to 5.5 % from a previously declared 4 p.c to 5 p.c, citing strong sales of its significant-margin SUVs and its top quality Genesis automobiles.

Lee Jae-il, analyst at Eugene Investment & Securities: “Centered on Hyundai’s revision of its operating margin targets, the impending fourth quarter benefits would likely mark the most profitable quarter this 12 months as the business would seem to expect that the chip offer difficulties would probable boost.”

Hyundai had turned in its most effective quarterly earnings in about six many years in the April-June quarter thanks to its conservative provide chain administration that assisted it to navigate the lack superior than other automakers.

But the prolonged disaster pressured the automaker to suspend some production during the 3rd quarter.

This month, Hyundai’s global chief working officer, Jose Munoz, said the automaker preferred to build its possess chips to lessen reliance on some others.

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