Chipping Away At 2021 Sales
Remember the Great Toilet Paper Shortage of 2020 caused by COVID? Can you recall that panicked feeling you got walking into the grocery store? Will they have some? Why aren’t they making it faster?
Automakers are saying the same thing about microchips and semiconductors.
Manufacturers are idling assembly lines and cutting back production as they find their shelves bare of the hi-tech, critical components needed to build their cars and trucks. It’s obvious that they knew these parts were necessary so, how could they let a problem like this jump up and bite them? Here are some of the reasons:
From raw materials to finished components, COVID disrupted every level of the supply chain. Companies worldwide are still trying to recover.
One article I read noted that February’s earthquake in Japan and the winter storm that paralyzed Texas are both contributing factors to the disruption of chip manufacturing.
A Just-In-Time Mindset
Automotive manufacturers try to keep expenses in check by using a Just-In-Time manufacturing process. They only order what they need, when they need it. When chip supplies began to run low, there was no surplus inventory sitting in a warehouse to fill the gap.
Automotive manufacturers aren’t just competing with each other. They’re competing with cellphone, big screen TV, computer and gaming system manufacturers for those hi-tech microchips.
From the time a microchip order is placed until it’s delivered is about 12 weeks. That’s a huge time lag. On top of that, microchips are typically built-to-order and orders are filled on a first come, first served basis.
The sophisticated navigation, safety and autonomous driving assistance systems that are being built into modern cars all require an ever-growing number of microchips and semiconductors. The lack of some of these complex components can stop a production line.
All these factors translate into production shortfalls that will likely exceed a million units worldwide this year and cost automakers billions. That’s why the selection on new car lots may seem to be a little slim… and why the price tags on all those low-milage, pre-owned cars on the lot may be a little higher in 2021.