The problems of the automakers are much worse than we thought

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For the past year and a half, the lack of computer chips has plagued the auto industry, forcing factories to close, delaying auto deliveries and driving up car prices. But that’s not the only problem that automakers face.

For the past year and a half, the lack of computer chips has plagued the auto industry, forcing factories to close, delaying auto deliveries and driving up car prices. But that’s not the only problem that automakers face.

Industry experts say automakers are struggling to get all kinds of parts and raw materials for a variety of reasons, including Covid-related factory closures by suppliers, logistics issues involving shortages of ships, containers shipping and truck drivers, and the challenges faced by some suppliers. fill jobs.

This makes the cost of the current supply chain crisis much higher than previous estimates, also resulting in much higher costs for automakers and car buyers.

Chips “are just one of many extraordinary disruptions facing the industry, ranging from resin and steel shortages to labor shortages,” said Mark Wakefield, global co-leader of the industry. automotive and industrial practice at the industrial consultant AlixPartners. “There is no room for error for automakers and suppliers at this time. “

Temporary shutdowns and slow production rates are hitting auto factories around the world, reducing the supply of available cars. AlixPartners now predicts that supply chain issues will cause automakers to build 7.7 million fewer vehicles around the world than if they could get all the parts and raw materials they need. This is up from the shortfall of 3.9 million vehicles that was forecast in May.

This limited supply of vehicles, coupled with strong consumer demand, is a major factor pushing new and used car prices to record highs.

What’s more, lost sales from not building these vehicles will cost automakers around $ 210 billion this year, according to AlixPartner’s latest estimates. That’s nearly double the company’s $ 110 billion estimate in May.

These lost sales will only be partially offset by higher prices, which will generate $ 90 billion in additional revenue on the vehicles sold. But automakers will also have to pay $ 150 billion in increased costs for parts and raw materials, or about $ 2,000 per vehicle.

In total, the industry will take a net hit of $ 270 billion from the various shortages, according to AlixPartners estimates, while car buyers will pay $ 90 billion in higher prices.

Supply chain reaction

The shortage of computer chips first hit the auto industry last year. As the pandemic spread and car sales suddenly declined, most automakers reduced their future chip orders, anticipating that demand for new cars would remain depressed for an extended period.

But when car sales rebounded much faster than expected, automakers found they couldn’t restore their chip orders as the tech industry grabbed the supply to use in everything from laptops to tablets. through phones and 5G networks.

Microchip supply was generally expected to hit its lowest point in the second quarter of this year and then start to improve. But an increase in Covid-19 cases has sparked a new round of shortages, as chip factories have been forced to temporarily shut down in some hard-hit countries, such as Malaysia.

Meanwhile, stocks of other key materials have also dried up.

“It’s not just the shortage of chips. Almost every industry… faces some sort of supply chain problem, ”said Cindy Jaudon, Regional President for the Americas at IFS, a global enterprise software company. “Our ports are extremely full. Paint manufacturers are grappling with titanium dioxide. They overlap. “

And there is little relief in sight.

“There really are no more shock absorbers in the industry right now when it comes to producing or procuring material,” said Dan Hearsch, Managing Director of AlixPartners. “Virtually any shortage or disruption in production in any part of the world affects businesses around the world, and the impacts are now magnified because of all other shortages. “

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