Pandemic chip shortages halt auto production

Once upon a time, the automobile was essentially a mechanical beast, but not anymore. State-of-the-art electronics have made their way into the modern car, from the engine to infotainment and climate control to the buttons now scattered throughout the cabin. The gains in convenience and efficiency cannot be ignored, but manufacturers depend on semiconductor suppliers to bring cars out. Over the past year, things have gotten much more complicated – with many automakers having to slow down production amid IC shortages dating back to spring 2020.

Shortages spill over into the supply chain

Unsurprisingly, responsibility for this situation can be firmly expelled from the ongoing coronavirus pandemic. Automakers have been forced to cut production as factories shut down to avoid spreading the deadly virus. This meant reducing orders with suppliers, especially since the just-in-time nature of modern auto production means there is little to no space to store excess parts in factories. This coincided with a drop in auto sales at the start of the lockdown, as few were planning to buy new cars during the turmoil of March and April 2020.

During this same period, demand for consumer electronics exploded, as schools and businesses shifted to remote operation. Webcams have been flying off store shelves, and businesses have spent large sums of money equipping their employees with laptops to enable their staff to work from home. Due to a shortage in this industry, semiconductor foundries switched production lines to produce parts that were in high demand, reducing parts for automakers who had reduced orders.

As the year progressed, demand for new cars increased, often attributed to the general fear of being exposed to the virus, which caused consumers to avoid public transport. With limited production capacity, chip foundries cannot simply make more chips; Instead, automakers had to halt production on some lines while waiting for deliveries to catch up with demand.

Honda, Toyota, Fiat-Chrysler and Ford have all been affected by the shortages. Bosch, a top-tier supplier, noted that the shortage was particularly acute in parts used for engine and transmission control units. Since these parts are particularly specialized for automotive applications, it is likely that their relatively small market means that foundries are primarily focused on shipping parts for consumer goods due to their higher volumes. With lead times measured in months, it will likely be some time before automakers can return to full capacity.

You need each piece to complete the construction

This is not the first time that automakers have faced shortages and it will not be the last. A fire at a magnesium casting plant in 2018 resulted in a widespread shortage of structural parts used by several manufacturers. In 2012, a disaster at a German company producing a chemical for fuel line coatings threatened to cut production.

While it is desirable for automakers to have redundant supplies of critical components, this is not always practical in the modern market. Chip manufacturing factories cost more than a billion dollars to build. Idle production lines don’t make money, so there is rarely spare capacity in this industry. Production runs are queued well in advance, with deadlines to launch a new run measured in months. Combine that with an aversion to keeping parts on hand due to the just-in-time nature of modern supply chains, and it’s clear it’s a problem that promises to happen again.

Unless there is a major cultural shift in global auto manufacturing, the shortages won’t go away anytime soon. Instead, every now and then the average consumer will have to wait a little longer for this new car to get off the line, and automakers will have to continue making frantic phone calls to suppliers to get parts on the boat. . Of course, if you are an armchair logistician yourself, let us know in the comments your best ideas for solving this riddle!