Money and Investing Writer
In the early fall, automakers Volkswagen and General Motors were optimistic about the auto industry’s recovery. Demand was rebounding from pandemic lows and factories were getting back to work. Unfortunately, multiple red flags were raised by the chip manufacturing industry.
As cars have become more like computers on wheels, chips are used to control engines and transmissions, cruise controls, airbags, brakes, power seats, and touchscreen entertainment systems. Right now, there is a global chip shortage due to the massive demand created by the gaming, education, and workplace industry in 2020.
Chipmakers and auto manufacturers are expecting to resolve this problem in the second half of the year. Others are wary, expecting the chip shortage could persist into next year.
This potential supply chain break has thrown a wrench in the decades-long changes automakers made to their manufacturing process. They reduced costs by carrying little inventory, becoming dependent on suppliers to deliver the chips on time every time.
The chip industry has the upper hand, with a broad customer base and a global demand boom globally caused by the pandemic. It was also auto suppliers’ decisions that caused this. In early 2020, they decreased orders on a bet that they would not need larger orders in the future. Others halted shipments by invoking legal clauses in their contracts which allowed them to change the terms such as a natural disaster.
While the various parties work towards a solution, a likely outcome is more transparency about supply chain risks in the chip manufacturing space.
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