The global microchip shortage has been labeled, perhaps unfairly, as the scapegoat for many of the supply chain issues the automotive aftermarket industry is facing. But to do so obscures the fact that the critical base of auto supplies is struggling with a range of issues including material availability, extended lead times, operating cost increases, and labor issues amongst transport workers.
Some analysts predict semiconductor shortages will be resolved by the end of 2021 but concede that it wouldn’t be until at least the middle of 2022 for newly manufactured semiconductors to make their way through the supply chain. Carlos Tavares, the CEO of automaker Stellantis, said, “The semiconductor crisis, from everything I see…is going to drag into 2022, easily,” while General Motors IT Director Dr. Mano Rao and Intel CEO Patrick Gelsinger both expect the chip shortage to last well into 2023. Simon Segars, CEO of Arm Holdings, a leading designer of semiconductors, said that although the semiconductor industry is investing around $2 billion per week to increase production by 50 percent, there is still a delay for some chip orders stretching over one year.
But even as semiconductor manufacturers attempt to boost manufacturing, a variety of other supply issues threaten recovery attempts for automotive OEMs. A scarcity of raw manufacturing materials, such as aluminum and rubber, is causing price volatility and longer lead times. With the automotive industry being too reactionary and ill-prepared to deal with these issues, we are witnessing firsthand just how fragile the automotive supply chain is. Predicting what happens next is an almost impossible task due to an extended period of low inflation for an economy that has been through seemingly endless lockdowns and restrictions. At present, we simply don’t know how post-pandemic recovery will look.
Labor shortages
The issues that have dogged the global shipping industry will almost certainly worsen before any improvement is seen, with challenges ranging from wage inflation to crew retention. There is also a crippling labor shortage of people who load and unload freight and truck drivers to transport freight to its final destination. Meanwhile, there’s no end in sight to the transport bottlenecks forcing auto parts sellers to lower the amount of stock they’re carrying. JPMorgan Chase CEO Jamie Dimon expects supply chain hiccups to fade quickly.
"This will not be an issue next year at all," Dimon said during a recent Institute of International Finance conference. “This is the worst part of it. I think great market systems will adjust for it like companies have."
We started experiencing initial supply chain disruptions started early last year, to the beginning stages of the pandemic. Factories in parts of the world where a lot of the world’s automotive manufacturing capacity sits – places like China, Japan, South Korea, and Taiwan, as well as Southeast Asian manufacturing centers in Vietnam and even workers at industrial powerhouses in Germany – were hit hard by outbreaks of coronavirus cases. Many factories shut down or were forced to reduce production with workers out sick or in lockdown. Some factories reported having lost up to 40 percent of their staff as a result of temporary closures. The uptake of vaccines has helped to slow the spread, but with several countries now introducing vaccine mandates, we can only wait and see if production targets are met.
Solving these problems and returning to some kind of normalcy will require all industries to attempt to hit moving targets with additional issues like rising fuel prices and transport costs adding stress to an already delicate situation. It’s already clear that a global major overhaul of inefficient processes is well overdue so automotive businesses can be better prepared to minimize the effects of future supply chain disruptions.
