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Chip Shortage Is Another Event to Change the Auto Industry

Everyone is talking a lot about the rise of EVs, but the truth is that there is another issue causing much more immediate effects

GM will deal with the chip shortage by prioritizing the production of cars that yield the highest profit margins

It is possible to assume that everyone in the automotive industry and many people outside of it are familiar with the supply problem with microchips which has tormented car production around the world for months. Effects are so numerous that the whole topic has practically merged with the health crisis and built a general state of unrest.

In short, the pandemic harmed demand for cars so much that the automakers had to reduce or even halt their production and, consequently, do the same to their supply orders. Nevertheless, many other industrial sectors kept working at regular rates, like those of electronic devices. That forced the supply chain to shift its focus over the months.

Once things started to pick up, the auto industry ramped back up its activities with an intensity that the supply chain could not match — especially now that it is prioritizing other buyers. One thing led to another and now we are facing a shortage which is affecting the car world in a number of ways we are still yet to fully discover and comprehend.

Rivian investors have to wait longer to get their hands on the fully electric models

Production and sales halt

Running low on raw material means producing less. Most automakers try and work around it by changing the plans for their current stock, negotiating with suppliers, making their current cars more attractive to postpone the release of new ones… they surely have many tools at hand. But what about automakers which are just starting to operate?

Rivian has just announced a new delay on the delivery of its pick-up and SUV for that reason. The CEO’s letter to buyers clearly expresses that establishing a complex operation like an automaker requires a delicate coordination of many activities, so “unforeseen challenges” such as the chip shortage can disrupt all that quickly and go even further.

How further? So many problems in the beginning of an automaker’s activities take a toll on its image; buyers were already complaining about Rivian’s poor communication with them before that. Even the best products can flop in the market depending on how its maker manages external issues and how it keeps contact with its customer base.

The Hyundai HB20 used to be a top seller in Brazil, but had its production affected by the chip shortage

New market dynamics

Since each company has its own demands and draws its own strategies for the supply chain, it is natural that each car lineup will endure the chip shortage in a unique way. Unfortunately, some of them have been forced to produce fewer or no units at all for such a long time that it became simply impossible to keep their position in the global market.

In Brazil, both the Chevrolet Onix and the Hyundai HB20 lost their top selling positions because there are no cars being shipped to dealers. Fiat, on the other hand, has taken the chip shortage better (so far) and executes temporary sales actions targeted at specific models. The result is that it is on the way to be the best-selling brand there this year.

This situation forces people to leave the comfort zone and start learning about the other makes and models available. Low-selling automakers get time under the spotlight to show what they can do, while high-selling ones are stimulated to rethink their production and marketing strategies to defend their desirable market positions in tough times.

While top competitors were driven out of stock, Fiat is pushing its compact lineup to best-seller positions

New production strategies

After understanding the chip shortage’s market consequences, we can move to deeper layers. Although the infamous semiconductors are essential to modern cars, many parts of a vehicle’s production can be completed without them and that is compelling automakers to think of ideas to circumvent that shortage — some less orthodox than others.

Last month, GM decided to cut the middleman and sell some full-size pickups without the stop/start system. More recently, Ford began to consider shipping incomplete cars to dealers and have them install the chips once the maker gets hold of the next supply. Desperate times, yes, but it is also easy to figure many ways both actions could backfire.

Removing components implies taking steps back on all the improvements cars have undergone over the past years; it is hard to argue in favor when we think of it that way. Outsourcing operations, in turn, requires a top-notch inspection work to keep things in hand. Strategies like those may have consequences that we will only see years in the future.

Ford is considering shipping incomplete cars and have dealers install the chips once they are available

Long-term changes

Major events like that usually show their deepest consequences over the years. The World Wars made small cars prosper, the oil crises made companies focus on fuel efficiency, the ’08 crisis made many brands trade hands… those events change society as a whole and the chip shortage, fueled by the health crisis, is definitely not an exception.

Here, finding new ways to deal with a missing component requires extra time and effort. In short, the only healthy way for companies to deal with that is by prioritizing car models which yield the highest profit margins. Over the years, we can expect generalist companies to abandon entry-level models in favor of larger and more expensive ones.

The industry is aware, of course, that this change could make cars inaccessible to many people. As this article mentions, society is gradually restricting entry-level cars to rental and subscription services because that seems to be the only way to keep them actually cheap for people who really need a vehicle of their own but live on a tight budget.

Toyota is also halting the production of some models to focus on high-profit ones

The chip shortage that is haunting the automotive industry can be considered an indirect but strong consequence of the health crisis started last year. What is your opinion about its effects and their duration? Do you believe that there are other important ones? Feel free to share your thoughts and ideas on that by using the comment button below!

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Danillo Almeida

Danillo Almeida

3.3K Followers

Content writer and engineer-to-be who aspires to work in car design. If you like cars but not the stereotypes that surround them, give my articles a try.