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Shortage cost of car chips would have risen to US $ 110bn

(Bloomberg) – As the semiconductor shortage plaguing the global auto industry worsens, their cost in terms of sales has nearly doubled to $ 110 billion, up from a previous estimate of $ 61 billion.

This is the latest assessment from AlixPartners, a global consulting firm closely monitoring the growing crisis. It also says now that the world’s automakers will lose 3.9 million production vehicles to chip shortages this year, up from its projection four months ago of 2.2 million. This is equivalent to 4.6% of the 84.6 million vehicles that AlixPartners had projected in terms of total production by 2021.

Automakers warned in their earnings reports in recent weeks that the chip shortage will get worse before improving. Ford Motor Co. and General Motors Co. projected that the second quarter would be the worst calamity, as they are forced to paralyze factories due to the lack of essential components. But the sector is likely to see no signs of recovery until the end of the year, according to AlixPartners’ assessment.

“It’s still deeply affecting the third quarter,” Mark Wakefield, head of the company’s global automotive practice, said in an interview. “We don’t think it will go into recovery mode until the fourth quarter.”

Timing is all the more important because chip-related production cuts are driving up the prices of new and used vehicles, contributing to higher inflation in the United States. Another researcher, LMC Automotive, predicts that global production will drop by almost 3 million vehicles in the first half of the year alone.

Ford CEO Jim Farley said Thursday that the company is redesigning its vehicles to use the most common and “affordable” chips. It also plans to increase its semiconductor inventory and sign contracts directly with chipmakers, rather than turning to a car supplier.

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“We really see the second half getting better,” Farley said at Ford’s annual shareholders meeting. “We are beginning to have more confidence in the supply of chips.”

The crisis that arose from production cuts caused by the pandemic has been exacerbated by a fire at a semiconductor factory in Japan and the historic winter cold snap in Texas that reduced production.

“Today there are as many as 1,400 chips in a typical vehicle, and that number is only going to increase,” said Dan Hearsch, managing director of AlixPartners’ automotive practice. “The top priority for businesses right now is to mitigate as best they can the short-term effects of this disruption, which can include everything from renegotiating contracts to managing the expectations of lenders and investors.”

Supply chain

AlixPartners, which helped guide GM through bankruptcy more than a decade ago, estimated in January that the chip shortage will cost the auto industry $ 61 billion in lost revenue. As the crisis has worsened, the company has begun working with automakers to review supply chain management to prevent this from happening again.

The first lesson automakers are learning, Wakefield said, is that they are no longer “the 800-pound gorilla” in supplier relationships, especially with chipmakers who also cater to price-paying tech giants. higher by more advanced semiconductors for mobile phones, laptops and video games. These vendors cannot be forced to dance to Detroit.

Automakers are now in a situation “where they see each other head-on and they’re not the big big dog on the street,” Wakefield said. “Cost reduction has been a priority for automakers. It’s great to save money, but not if you can’t make cars. “

Original Note: Automotive Chip-Shortage Cost Estimate Surges to $ 110 Billion

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