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Microchip Update (It’s Not Good News)

In our last blog, we reported on the semiconductor shortage that’s hit the global markets.

Well, it seems the situation has ballooned over the last couple of months. The total impact on the automotive industry has now reached $210 billion. AlixPartners estimates that 7.7 million fewer vehicles will be built this year, thanks to the ongoing chip crisis.

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The worsening microchip shortage looks set to cost the automotive industry $210 billion in sales

While sales have not been impacted up until now, we can expect to see them take a sharp hit as stockpiles are exhausted.

“The barrel is empty, there’s nothing left to scrape,” says Dan Hearsch, AlixPartners. “Going forward, sales will suffer. Sales hadn’t suffered because there was enough inventory to draw from. It’s not there anymore.”

Where does the problem lie?

The chip shortage began late last year when automakers underestimated demand as pandemic restrictions loosened. Since then, the crisis has only worsened.

The backlog looks set to continue for some time. Key supply centres in Southeast Asia have been hit with factory shutdowns as COVID-19 outbreaks spread. It now takes a record 21 weeks to fill chip orders. Auto executives predict the shortage could last for years.

What’s the impact on the industry?

Manufacturers are expecting the problems to hit third-quarter earnings. Many suppliers, including Faurecia SE, Hella GmbH & Co. and Volkswagen AG’s truck unit Traton SE are already sounding the alarm.

As inventory on dealers’ lots has dwindled, car prices have skyrocketed. Supply has become so constrained, some dealers have resorted to renting cars, so they have something to display in their showrooms.

How long will this continue?

According to AlixPartners, it’s possible that the current loss forecast of $210 billion may be adjusted upwards again. The myriad uncertainties facing the industry don’t look set to be resolved any time soon. It has been described as the most protracted and far-reaching supply shortage the industry has seen.

“Frankly, it’s just not getting better. People are adjusting to the fact that this is going to take much longer than we all thought.”
Dan Hearsch, AlixPartners

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