Car manufacturers, poor relatives of the flea race in the time of Covid-19

Published on : 05/02/2021 – 17:48

The automotive sector has struggled since the start of the year… and it is not because of demand, which is there. The problem for Ford, General Motors and other competitors is the boom in video games and telecommuting. Explanations.

For the automotive industry, when things go badly, they go bad. And when it gets better… it goes bad too. While demand for cars rebounded strongly at the end of 2020 after a black year due to containment linked to the pandemic, manufacturers are struggling to keep up. Blame it on the shortage of electronic chips.

The American giant Ford announced Thursday, February 4, that he would have to decrease by almost 20% the production of its vehicles, because of the difficulties in getting hold of these precious components which are found in dashboards, assisted driving systems or even on-board GPS. Ford was even forced to make fewer F-150 pickup trucks, yet its goose that lays golden eggs in the United States, underlines the Wall Street Journal. In all, the brand estimates that this drop in production should cost it between $ 1 and $ 2.5 billion in pre-tax income in 2021.

Also affected, General Motors decided at the beginning of the year to pause in vehicle assembly lines in America, Europe and even China. Nissan, Renault and Fiat have reported similar problems. In all, these chip supply problems could cost the industry more than 500,000 vehicles in 2021, estimates IHS Markit, a US economic information firm.

Worried, Peter Altmaier, the German Minister of the Economy, called on his Taiwanese counterpart, Wang Mei-hua, to put pressure on the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest supplier of electronic chips for cars, in order to deliver first to German manufacturers, reports the Financial Times. Volkswagen’s ability to assemble enough vehicles to meet demand is said to be an “important issue for the global recovery”, according to the German minister.

Blame it on Donald Trump and video games

The current setbacks in the automotive industry are a compendium of all the difficulties for companies to navigate in these times of pandemic. We find there the strong dependence on China, the impossibility of predicting the evolution of the economic situation, the soaring prices of the raw materials necessary for the manufacture of these semiconductors, the consequences of Donald Trump’s trade war or again the rise in popularity of video games and other tech products that have become essential with containment.

It all starts in the spring of 2020 with the containment measures that put the brakes on the global economy and drop demand for a whole series of goods, including cars. Car manufacturers then stop part of their production and cancel some orders for semiconductors.

Error: the only two manufacturers that have maintained their purchases – the Japanese Honda and Toyota – were relatively spared from this shortage of microchips. Indeed, after the storm of the first containment, orders have resumed strongly. The demand for cars in the second half to increase by nearly 10% compared to last year, recalls CNN. And the manufacturers found themselves very helpless when the motorists returned.

In the meantime, the economic landscape had changed drastically, and not in favor of manufacturers. First, former US President Donald Trump, then still in office, avtook sanctions against minimum wage, the main Chinese manufacturer of semiconductors, which has forced important customers of this Chinese giant, such as Huawei and Samsung, to find alternative suppliers… such as TSMC.

Everyone wants chips

With the containment, some consumers have also turned to video games, which have seen a surge in sales – Nintendo, in particular, has seen its profits jump 400% since the start of the pandemic. The popularization of teleworking has also led to an increase in the sale of laptops and smartphones.

So everyone wanted chips at the same time… and car manufacturers were far from being the biggest customers. “They only represent 12% of global demand for semiconductors, which does not put them in a strong position to negotiate with manufacturers courted on all sides,” said Arndt Ellinghorst, an analyst at the US investment consulting firm Bernstein, interviewed by CNN. “We are far behind Apple or HP in the food chain”, summarizes the Financial Times the leader of an automotive group who preferred to remain anonymous.

These manufacturers have another handicap: they do not need the latest chips to run on-board electronics in cars, recalls the Wall Street Journal. With the sharp rise in the price of the raw materials needed to build these components, manufacturers like TSMC are prioritizing investments in factories producing the latest generation chips, which allow for higher margins. It is all the more profitable as demand is very strong, since these chips are necessary for the deployment of 5G and are at the heart of the new video game consoles from Sony and Microsoft, which are snapping up.

The health crisis has revealed to what extent the kings of the road, who rely so much on electric cars, have become dependent on these chips, which are also essential to the giants Apple, Samsung and Sony. Play or drive, maybe tomorrow we’ll have to choose.


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