Once upon a time, the automobile was mostly a mechanical beast, but it is no longer. Advanced electronics paved the way for the modern car, from the engine to infotainment and temperature control to the buttons now spread throughout the passenger cabin. The gains in amenity and efficiency cannot be overlooked, but they leave manufacturers dependent on semiconductor suppliers to launch the cars. In the past year, it has become much more complicated – with many car manufacturers having to reduce production in the face of a shortage of integrated circuits that can be traced back to spring 2020.
Shortages echoing in the supply chain
Unsurprisingly, the blame for this situation may be firmly at the door of the ongoing coronavirus pandemic. Automakers were forced to cut production as factories closed to prevent the spread of the deadly virus. This meant reducing orders to suppliers, especially since the just-in-time nature of modern car production means that there is little or no space to store surplus parts in factories. This coincided with a drop in car sales during the early part of the blockade, as few contemplated buying new cars during the turbulence of March and April 2020.
In the same period, the demand for consumer electronics skyrocketed, as schools and companies began to operate remotely. Webcams flew off store shelves and companies spent large sums equipping their employees with laptops so they could work from home. With scarcity in this sector, semiconductor foundries switched production lines to produce the parts with the greatest demand, reducing parts for car manufacturers who reduced their orders.
As the year went on, demand for new cars increased, often attributed to the general fear of being exposed to the virus, causing 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 meet demand.
Honda, Toyota, Fiat-Chrysler and Ford were affected by the shortage. First-tier supplier, Bosch, noted that shortages are particularly acute in parts used for engine and transmission control units. With these parts being particularly specialized for automotive applications, it is likely that their comparatively small market has meant that foundries are concentrating on shipping parts for consumer goods, thanks to their higher volumes. With delivery times measured in months, it will probably take some time before car manufacturers can return to full capacity.
You need all parts to complete construction
It is not the first time that automakers have faced shortages, and it will not be the last. A fire at a magnesium smelting plant in 2018 led to widespread shortages of structural parts used by various manufacturers. In 2012, a disaster at a German company that produced a chemical product for fuel line coatings threatened to cut production.
While having redundant supplies of critical components is desirable for car manufacturers, it is not always practical in the modern market. The chip factories cost more than a billion dollars to build. Idle production lines do not make money, so there is rarely spare capacity in this sector. Production runs are queued well in advance, with lead times to start a new run measured in months. Combine that with an aversion to keeping parts available due to the just-in-time nature of modern supply chains, and it is clear that this is a problem that promises to reoccur.
Unless there is a major cultural shift in car manufacturing on a global scale, the shortage will not disappear anytime soon. Instead, every now and then, the average consumer will have to wait a little longer for the new car to get out of line, and automakers will have to continue making frantic calls to suppliers to get parts on the boat. Of course, if you are also an armchair logistics, speak in the comments with your best ideas to solve this puzzle!