Auto Industry Faces $110B Shortfall Due to Semiconductor Shortage

Auto Industry Faces $110B Shortfall Due to Semiconductor Shortage

A shortage of semiconductor chips could end up costing the automotive industry up to $110 billion in revenue according to the consulting firm AlixPartners, almost double the prediction made last January, NBC News reports.

The firm found in its analysis that the auto industry will likely produce roughly 3.9 million fewer vehicles this year than first thought, while some products set to debut in 2022 will likely face delays. 

“The next few weeks should be the worst,” said Dan Hearsch, AlixPartners managing director, who noted that this shortage could last “into next year before things have any chance of clearing up. And that’s if nothing else goes wrong.”

He added, “There are simply going to be instances where they won’t be able to get all the parts.”

While automotive manufacturers expected demand to drop during the COVID-19 pandemic, with most people confined to their homes due to lockdown orders, sales in April hit record numbers for many of them. However, because manufacturers had drastically reduced their orders of parts, including semiconductor chips, they now have to scramble to find resources, especially since many semiconductor manufacturers found alternative customers in the consumer electronics industry. 

The issue is further compounded by the late season ice storm in Texas that impacted many semiconductor chip plants in the state, a fire at a major plant in Japan, and a drought in Taiwan forcing the country to lower production.

“For a while it felt like a badly written comedy, the size and scale of the things breaking,” Hearsch added. “Now, we’re starting to feel the pain.”

“The pandemic-induced chip crisis has been exacerbated by events that are normally just bumps in the road for the auto industry, such as a fire in a key chip-making fabrication plant, severe weather in Texas and a drought in Taiwan,” said Mark Wakefield, a managing director at AlixPartners, said in a press release according to CNBC. “But all these things are now major issues for the industry — which, in turn, has driven home the need to build supply-chain resiliency for the long term.”

Mike Jackson, the CEO of AutoNation, told NBC News that most dealers prefer to keep about 60 to 70 days’ worth of products on-hand for customers, but most lots have only a 30-day inventory at this time. This has caused manufacturers and dealers to increase prices and cut back on various incentives after offering deals worth thousands at the height of the pandemic.

“There are up to 1,400 chips in a typical vehicle today, and that number is only going to increases as the industry continues its march toward electric vehicles, ever-more connected vehicles and, eventually, autonomous vehicles,” Hearsch said. “So, this really is a critical issue for the industry.”

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