Global Semiconductor Shortage Is Slowing Down Production In The Automotive Industry

The pandemic forced people to work from home and their kids began remote learning next…

The pandemic forced people to work from home and their kids began remote learning next to them.

Remote workers started upgrading their devices which lead to an increase in demand for laptops, phones, Bluetooth accessories and lots of other electronic devices.

All those devices require semiconductors to operate because they function as the brains for electronics.

SIU Associate Professor of Operations Management Greg DeYong says the automotive industry is having a tough time producing vehicles because of the global semiconductor shortage.

“Unfortunately, what happened really in in started this was during the initial shutdowns for Covid the auto manufacturers stopped production and canceled a lot of their orders for semiconducting chips and so the chip manufacturers had to stop manufacturing those chips for a while.”

The canceled orders were quickly replaced with orders for semiconductors for other electronic devices.

DeYong says it can take up to seven months to make semiconductors from start to finish.

“Once they got busy again in the semiconducting chip industry, then they couldn’t catch up because suddenly the orders all came back and there was no way to catch back up.”

Watermark Ford and Hyundai Sales Manager Jesse Edwards says pre COVID-19 they usually have more than 200 new cars in stock, but now…

”We’re running anywhere between 10 and 20 percent of that. Lately we’ve had somewhere in the neighborhood of 25 to 35 new cars at any given time.”

Edwards says with lower inventory the manufacturers are rethinking how they produce vehicles and what options they’re making available.

“The more equipment that you want, the kind of bigger struggle there is there, I guess you could say, but at the same time, the manufacturers are being smart in analyzing customer demand, so they’re not building us a lot full of cars that people don’t want they’re focusing on, you know, what has a fast turn, what is selling quickly, what the market’s actually asking for and so they’re pouring their resources into that.”

While the automotive industry waits for the supply chain to deliver products, car shoppers are waiting as well.

“Once upon a time, it was eight to 10 weeks. We’ve been seeing three to six months. There are some constraints with materials other than chips, even though chips are the main focus.”

DeYong says multiple industries have taken notice during this global shortage and changed their approach to selling products.

“They are also doing the same thing Apple’s doing, which is moving towards their higher profit margin products, so you’ll see a lot better supply of SUVs than you’ll see of small, cheap cars, because that’s where the money is right now, but they’re really they’re leaving features out of cars because they don’t have the chips to support them now.”

The semiconductor industry has had its own problems to deal with and Edwards says that has had a big impact on the supply chain.

“The plants where these chips are produced, have fallen victim to Covid outbreaks for further shutdowns, fire damage, some are produced in Texas, and you know, snowstorms wipe those out for a little while.”

DeYong says the impact was huge because of the number of manufacturers around the world.

“You know, it’s one of those things where the industry has been kind of consolidating for a while and we haven’t really noticed. And so suddenly we woke up one day and we said, wow, there’s only one American manufacturer that makes chips that’s Intel. And there’s only a couple in the whole world now where there used to be dozens of chip manufacturers.”

Analyst are predicting the supply chain should catch up within the next two years.