Chip shortage prompts dire outlook
Firm says problem may cost auto industry $14.3B in Q1
The shortage in semiconductor chips used in new vehicle parts is going to cost the automakers dearly this quarter and is likely not to be recouped this year.
According to global consulting firm AlixPartners in Southfield, the present chip shortages could cost the global auto industry $14.3 billion or more in revenues in the first quarter and $60.6 billion for the year. It did not break out the estimated revenue hits by company.
“The $14 billion is likely to happen and probably worse,” said Dan Hearsch, a managing director in the automotive and industrial practice at AlixPartners.
AlixPartners bases its revenue forecast off data company IHS Markit’s Global Light Vehicle Product Outlook in January. Since then, Hearsch said, there have been more plant shutdowns due to a lack of parts. Each of the Detroit Three has been affected.
“Very few (automakers) are being spared at this point,” Hearsch said.
AlixPartners converted the production forecast into dollars breaking down production units by region and then figuring the average sales price for those units. But the revenue loss could be recouped because consumer demand for the vehicle will be filled later when the automaker gets the parts to build and sell the vehicles, Hearsch said.
“Looking in a three-year window, you may say all of those cars were sold eventually, but not until 2022 or 2023,” Hearsch said.
The $60 billion hit across the industry is likely to be made up in next year’s sales and earnings, provided there are no other shocks to the economy or unforeseen production disruptions, he said. One such disruption was the severe winter storm that hit the nation earlier this month, forcing plant shutdowns including General Motors’ highly profitable full-size SUV plant in Texas and pickup plant in Fort Wayne, Indiana.
Demand for the chips has been stronger than usual in part because of the COVID-19 pandemic and an increased use of laptop computers, 5G phones and other IT equipment that use the chips.
Cars use the chips in a variety of electronics systems. One car part could use 500 to 1,500 chips depending on the complexity of the part, Hearsch said.
“Some are very small, simple transistors and some are very high-powered and ad
vanced wafers like what’s in your laptop,” Hearsch said. “They are all made from silicon wafers and that’s where the short starts.”
Taiwan-based Taiwan Semiconductor Manufacturing Company makes 56% of all the chips, Hearsch said. The other market leader is United Microelectronics Corporation (UMC) also in Taiwan.
Automakers do not buy the chips directly from the manufacturers. Rather it’s suppliers who buy the semiconductor chips and make the parts.
IHS Markit estimates the deficit will result in 100,000 fewer light-duty vehicles built in North America.
The shortage has already caused production disruptions across the industry and at each of the Detroit Three automakers:
General Motors has shuttered three plants in North America from Feb. 8 to at least mid-March, affecting some compact SUV production.
Ford Motor Co. has seen production disruptions in the past several weeks to its popular, highly profitable F-150 pickup, as well as some SUVs and cars.
Stellantis, which used to be called Fiat Chrysler Automobiles, idled plants in Mexico and Canada building the Jeep Compass and Chrysler 300, Dodge Charger and Dodge Challenger, for much of January. It has been running normal production in February as it closely monitors the supply chain.
“Shutting down a plant is costly,” Hearsch said. “They charge their suppliers tens of thousands of dollars per minute for down time. Part of that is punitive, but these are billion-dollar plants that have limited life cycles and pricey tooling specific to a vehicle that will only last five years.”
Hearsch said it could cost an automaker $20 million to $25 million for one lost day of production when factoring in lost sales, the cost of catching up that lost production, lost employee productivity, cost to maintain the factory’s machines, cost to lay off workers and then later the cost of overtime to catch up on production.
President Joe Biden signed an executive order Wednesday to review the U.S. supply chains of products in key industries, including semiconductor chips. It is a proactive step aimed at mitigating further production disruptions to the auto industry.