As factory closures hit automakers, chip shortages delay

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Every day Laurent Valy hopes that his phone will beep to remind him that he has received a text message saying that his colleague can go back to work.

He leads a union representing 600 auto workers at the Peugeot factory in Rennes, northwestern France, which was closed due to a semiconductor shortage, which caused a sharp drop in car production and closed factories around the world.

The CFDT union organizer at the Brittany factory said: “Some colleagues are psychologically fighting this situation and they are very vulnerable,” he added, adding that workers lose one-sixth of their wages when they are at home.

For Valy and other auto workers, the news that the world’s largest automaker Toyota lowered its annual production forecast last Friday will be a further blow, indicating that the chip crisis is far from over.

With the closure of a series of factories in Europe, North America and Asia, the shortage may continue into next year.

The pandemics and natural disasters in the United States and Asia have made it difficult for chip manufacturers to cope with backlogs of orders, and disruptions in global transportation and supply chains have not helped deliveries.

In recent days, estimates that auto production may be hit by shortages have surged.

Data provider AutoForecast Solutions predicted in its latest survey that the crisis may cause the loss of 9.5 million cars, nearly 1 million higher than its forecast a week ago.

The situation in Asia is the most severe. According to AFS calculations, by the beginning of 2022, the region’s production may be reduced by 3.4 million.

The greater concern for automakers is that as manufacturers that make semiconductors for a series of auto parts drastically cut the production of chips that auto groups tend to use, this trend may become permanent because they prioritize more profit. High technology and telecommunications contracts.

Automobile groups have been ranked last by technology and telecommunications companies. They need more advanced and more expensive chips to make semiconductor companies make more money.

Even Toyota, which usually avoids problems due to supplier connections and large inventories, is beginning to feel the pressure.

The company was forced to lower its annual production target by 3% on Friday due to the suspension of operations in Malaysia, which produces brake system chips, and Vietnam, which produces automotive wiring harness semiconductors.

Teruaki Nakatsuka, CEO of Nissan component supplier Jatco, told the Financial Times that the industry was caught off guard by the wide coverage of chip components scattered in the increasingly electrified automotive supply chain.

“Even where you least expect it, there are components at every level. I think the fragility of the supply chain has not received enough attention, including the concentration of the semiconductor industry in Malaysia.”

There is no probation for factory workers in the United States. Ford and General Motors reduced their shifts by up to two weeks at several factories across the country in August and September, including factories producing large, lucrative pickup trucks.

The line chart of the percentage of profit margin reported by the largest companies in each industry from 2005 to 2021 shows that automotive suppliers bear the brunt of the impact of the chip crisis

This means that sales have fallen sharply, and Ford reported that it was down 33% in August compared to the same period last year.

However, so far, automobile groups have weathered the crisis relatively well. They have raised prices and prioritized manufacturing models with higher profit margins to keep profits rolling in.

In Europe, Stellattis, Ford, Volkswagen and Nissan all posted stronger-than-expected results in the summer and raised their full-year forecasts. The profit margin in the first half of this year was about 10%, an increase of nearly 5% over the normal period.

Some automakers even cut costs to increase profits by shipping cars without all advertising features.

Stellantis was formed by the merger of Peugeot owners PSA and Fiat Chrysler at the beginning of the year, and it also assured investors that it expects significant improvements in the winter.

When talking about the closure of the Rennes plant, it stated that the crisis is affecting “the entire automotive world” and that it has been adjusting factory activities since the pandemic began.

Daimler, Volkswagen and BMW said they believe that supply will begin to normalize in 2022.

But some people warn that automakers may be about to usher in a more difficult period.

Jefferies analyst Philippe Houchois said they are approaching the “end of the Goldilocks period” because they have little room for pricing, which makes them vulnerable to further cuts in car production.

Seiichi Nagatsuka, vice chairman of the Japan Automobile Manufacturers Association, said that the uncertainty surrounding chip supply bottlenecks will continue to exist.

He said: “It is difficult to foresee the impact of Covid-19’s comeback after the fall.”

For Valy, who is sitting outside Rennes’s closed factory, automakers must accept some responsibilities because they did not adequately predict structural changes in the market-but they are not the only ones who are negligent.

“Where is the country?” he asked. “It’s like paracetamol [which is mainly produced in Asia], We should realize early on that our semiconductors are manufactured in Asia, which brings about sovereignty issues. “

Additional reporting by Claire Bushey and Dan Dombey

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