Auto industry in crisis mode: Chip emergency – and no end in sight

Auto industry in crisis mode
Chip emergency – and no end in sight

From Helmut Becker

Nothing works today without semiconductors. This also applies to the automotive industry, which, barely resurrected, is sinking into a deep crisis again: production downtimes and plant closings are increasing. It could get worse.

This has not happened in half a century of automotive history – a global industry crisis due to a lack of production material. It is not about costly and spectacular workpieces, but about a completely inconspicuous, tiny piece of silicone, which is now a thousand times in every household as an invisible little helper. It revolves around electronic memory chips, i.e. semiconductors.

Unexpected production failures in Asia for memory chips due to corona lockdowns and other causes have led to material bottlenecks, production failures and, most recently, even factory closures in the automotive industry worldwide. The cause of the global production malaise is not a lack of demand, as is usual in recessions, but a lack of supply in the form of material bottlenecks in memory chips and other primary materials, which as links in the value chain are also affected by the causal chip shortage and pass on delivery failures to the subsequent processing stages.

New territory for the automotive sector

All of this is new and completely surprising for people who have grown up in a society of abundance and fierce discount battles – especially when it comes to car sales. This also applies to automobile managers and their buyers. They all celebrated their great success in cost-cutting orgies in times of just-in-time logistics. The negative consequences of this zero stock policy are visible today for all manufacturers and all suppliers.

The German economy, with its high degree of industrialization and its close global economic interdependence, is hit particularly hard by the chip crisis. According to the Ifo Institute, the automotive industry is the industry most severely affected by supply bottlenecks with preliminary products, especially computer chips. Because up to 1000 semiconductors are built into a modern car of the upper middle class; Electric cars even need 1200 to 1400 of them! The trend is rising sharply. Computer mutants such as driverless robotic cars are even overflowing with memory chips.

To make matters worse, the world market for memory chips is currently dominated by cheap manufacturers from Asia. Europe: Nothing. Despite high levels of government funding from the EU and the federal government, this will not change anytime soon. Because money alone does not produce chips. It takes several years to build new chip factories. It is also not uncommon for two to three years to pass between the start of production and the installation of a semiconductor in a vehicle. The conclusion from all this can only be: An end to the supply crisis for the German auto industry is not in sight.

Cross-industry problem

To make matters worse, the chip crisis is not only leaving its mark on the auto industry, but also on the entire German economy. The general economic climate, which has so far been geared towards recovery from the Corona crisis in all industries, is clouding over. Even for economists, the latest economic indicators look very much like an impending recession. The Ifo business climate, the leading economic indicator of the German economy, has been falling for three months in a row Months in a row.

All signs point to a weakening and termination of the corona recovery. As hopefully as the year had started for the automaker, the picture changed again quickly towards autumn. All key figures are now clearly pointing downwards again, this time not because of corona and lockdown, but because of material shortages: The lowest registration result since reunification is expected for the year as a whole.

In view of the current industry data, all previous forecasts are outdated. Global car production downtime due to a lack of chips is now estimated at around 12 million. F.For Germany, the original forecast of 3.1 million new registrations has now been reduced to 2.7 million. That would be the lowest annual result since reunification. Car production in Germany would have been almost halved compared to the record year 2016 with 5.7 million – under normal conditions a great success of green environmental policy, since the production loss only affected combustion cars. The decisive factor for the weak sales is poor production. The reasons for this are well known.

A quick turnaround is not in sight

A quick end to the chip-related production and sales crisis is not in sight. What is certain is that the longer the crisis lasts, the more affected manufacturers without buffer stores. Declines in employment are to be expected, layoffs and short-time work inevitable. In short: the German auto industry is on the march into crisis.

Not a nice start to work for the new federal government! Although the chip crisis, unexpectedly and unplanned, has already relieved a lot of CO2-reducing work from an upcoming green environmental and transport policy. What is a speed limit against a collapse in combustion sales of up to 40 percent.

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