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Supply Chain Snarls Seen Costing Automakers $210bn This Year

It’s not just a shortage of chips that’s forcing companies to cut global production by 7.7 million units this year, new study finds

New cars at a parking lot in Shenyang, Liaoning province, China. Photo: Reuters

 

Global automakers could lose $210 billion in revenue this year because of supply chain disruptions, nearly double a forecast earlier this year, consulting firm AlixPartners said Thursday.

A shortage of semiconductors is just part of the problem, AlixPartners said in a new forecast. High prices and tight supplies of commodities such as steel and plastic resin are driving up costs and forcing automakers to curtail production.

Automakers are on track to “lose production” of 7.7 million vehicles in 2021, according to the new forecast. AlixPartners advises automakers on supply chain and other issues.

 

DOUR FORECAST

In May, the firm predicted automakers would lose $110 billion in revenue and fall 3.9 million vehicles short of production plans for the year.

The dour new forecast comes amid warnings from automakers and commercial truck manufacturers that semiconductor shortages and commodity price spikes are not easing as 2021 heads into its final months, as industry executives had hoped they would.

Last week, IHS Markit slashed its global auto industry production outlook for 2021 and 2022.

In the US market, vehicle sales have begun to slow because inventories on dealer lots are around 20 days’ supply, less than half the normal levels, said Dan Hearsch, a managing director in AlixPartners auto practice.

“We had originally assumed we would get back to normal and claw back volume” in the fourth quarter, Hearsch told Reuters. “That is not going to happen.”

 

MALAYSIA SURGE

Instead, automakers could have tight inventories until late 2022 or early 2023, he said.

Supplies of semiconductors have been hit in the past few months by a Covid surge in Malaysia, which has hobbled production at important suppliers.

Backlogs at major US ports are hampering efforts by auto manufacturers to import more plastic resins and steel, he said.

In response, automakers are committing to longer contracts to lock in supplies, buying as much as 40 to 50 weeks in advance, Hearsch said.

“They are signing up for things they would never have done a year ago,” he said.

 

  • Reuters with additional editing by Mark McCord

 

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Mark McCord

Mark McCord is a financial journalist with more than three decades experience writing and editing at global news wires including Bloomberg and AFP, as well as daily newspapers in Hong Kong, Sydney and Melbourne. He has covered some of the biggest breaking news events in recent years including the Enron scandal, the New York terrorist attacks and the Iraq War. He is based in the UK. You can tweet to Mark at @MarkMcC64371550.

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