The chip shortage will cost automakers on three continents to lose revenue which could be the start of a global automotive recession.
The COVID-19 pandemic had an unforeseen impact on the automotive world. The crisis caused a shortage of the semiconductor chips needed to produce vehicles. The question we are faced with is whether or not the government will need to be involved in this problem.
Not All Problems are Meant for the Government to Fix
You don’t hear of small businesses being bailed out by government handouts and you certainly don’t normally expect that to happen. Most businesses have to survive on their own merits without the aid of the government. When a business is as large as those that make up the automotive industry, that’s not always the case. Even so, should this be a problem that the Federal Government has to fix?
How Hard Will the Auto Industry be Hit by this Crisis?
The chip shortage is predicted to create a $110 billion loss of revenue in the automotive industry. That’s an increase when compared to the prediction from January which was that the loss would be $60 billion. We may see nearly 3.9 million fewer vehicles built this year than what was planned. This is certainly a serious problem for automakers around the world.
What Caused the Shortage of Semiconductor Chips?
When the COVID-19 pandemic hit the globe and automakers began to shut down their production lines, the orders for these chips were canceled. With so many people staying home, a massive increase in the sales of game consoles was experienced. Game consoles use the same chips to operate as the computer systems in many vehicles. The chip orders from the gaming industry increased dramatically.
Once dealerships figured out how to sell vehicles virtually through online processes with delivery to the driveways of customers after, production lines were reopened and the need for these chips increased. Unfortunately, the manufacturers of the semiconductor chips didn’t have the capacity to fill the new orders quickly, which caused the chip shortage that we have now.
Other Factors Further Complicated Matters
Do you remember the ice storms in Texas? Did you hear about the fire in Japan? Are you aware of the drought in Taiwan? These three events all took down major plants that produce the semiconductor chips needed for vehicles. This means that not only did the manufacturer not have the capacity to fill orders, they also don’t have many of the expected plants to produce them at any necessary rate. This complicated things much further than expected.
Answering the question in the title will be something you may have to figure out for yourself, but you can be sure the Federal Government is looking into the shortage and the potential loss of revenue to see if they need to step in. It may be some time before we see the auto industry recover from this chip shortage.
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