Automakers are still weathering the domino effect from the global pandemic. After enduring months of low sales, fast forward a year later and nearly every automaker is experiencing a rapid rebound in demand. While interest is there, the semiconductor shortage has put these manufacturers in hot water. They cannot produce vehicles fast enough to meet the uptick in demand. Unfortunately, the chip crisis shows no signs of easing up. Some experts agree it will likely linger well into next year. Even the year after.
Lynn Torrel, Chief Procurement and Supply Chain Officer of Flex, a global manufacturing provider, states, “With such strong demand, the expectation is mid to late-2022 depending on the commodity. Some are expecting [shortages to continue] into 2023.”
The chip crisis has affected just about every industry in some way. That said, our global automotive market is suffering. Consumers are experiencing firsthand the repercussions of the chip crisis. With car prices skyrocketing and some vehicles being sold above the window sticker price, the days of 0% APR and stealthy lease deals have vanished. You can’t walk into a dealership today and expect to get a deal. It’s just not happening.
Read on to find out the chip crisis’ direct effect on auto output this year. On top of that, learn what automakers are doing to lessen the impact while keeping production safe during the COVID-19 pandemic.
Cutting global output by 7.1 million
According to an IHS Markit study, the semiconductor shortage will cut global auto output by approximately 7.1 million this year. This is a direct result of COVID-19, which required greater use of microchips for ventilators and various medical supplies and equipment. Also, a stark contrast to typical chip production demands consisting of cars, electronics, and toys. While the automotive industry is being rendered negatively, select manufacturers are taking precautionary steps to make production safe and congruent with the current climate.
Toyota, Ford, GM, and VW will idle production in the upcoming weeks
Chief manufacturers are being left with no other option but to slow down production. The microchips remain a crucial component of building a car, therefore, vehicle output is becoming hindered in the process. Automakers are taking every step possible to make the reality of this situation more manageable. Here is how Toyota, Ford, VW, and GM are taking action:
- Toyota will cut output by 40% in September
- Ford is suspending Kansas City assembly plant and temporarily suspending all output at a plant in Cologne, Germany
- VW is limiting shifts following a summer break
- GM is slowing down EV plant production, specifically the Chevrolet Bolt
Each automaker is adjusting to the times as best as possible. Although no manufacturer would hope for this outcome, the chip crisis is a reminder that production limitations do still exist. The concern for safety remains an important factor in vehicle production as well.
COVID-19 concerns urge factory shutdowns
As the Delta variant continues to spread worldwide, large factories in Southeast Asia are being forced to shut down apart from the ongoing chip crisis. For safety purposes, many automotive plants are taking necessary action to keep the suppliers of these chips safe among the rising cases. Once again, safety and production are at odds. The pandemic continues to hold up any further increase in output, which is why we’ll see a tremendous decrease in vehicles on the market. It’s definitely not the right time to buy with limited quantities and high sticker prices at play.
Will chipageddon come to an end?
Right now, the roller coaster that is COVID-19 remains far from over. In areas where microchip production takes place, the spread of the virus continues to surge. Therefore, the slow down in production is inevitable. For the automotive industry to recover its production rate, things go hand in hand with the spread of the virus. With great hope, things will improve in due time. Some experts say by mid 2022 the chip crisis should recover. However, the utility of these tiny chips is so widely demanded. Our best bet is the auto industry, and other commodities, will feel the aftermath of the shortage in the years ahead.