Doing so is in the interest of both their manufacturing and financial services operations, both for financial stability and consumer finance-regulated obligations. The automotive industry has been one of the worst affected sectors throughout the pandemic, with full-scale lockdowns, closed showrooms and staffing issues grinding sales down to their lowest point since records began. Consumer confidence and demand rebounded in 2021, however, the global shortage of semiconductor chips has stunted the industry’s much-needed recovery.
Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), acknowledges that the worrying situation is likely to run well into 2022. “With an increasingly negative economic backdrop, rising inflation and Covid resurgent home and abroad, the circumstances are the toughest in decades,” he says. “With output massively down for the past five months and likely to continue, maintaining cash flow, especially in the supply chain, is of vital importance.”
In October, Volkswagen reported that €500m had been wiped from its pre-tax profits in the third quarter of 2021, while Stellantis reported a 14% fall in revenues over the same period, with semiconductor shortages at the heart of the problem. Given that more than 95% of new cars are sold on finance, according to the SMMT, a problem for manufacturing is also a problem for financing.
“Customer demand is high, we have more than 1m vehicles in our order bank in western Europe alone,” said Herbert Diess, Chief Executive of Volkswagen. “The results of the third quarter show once again that we must now systematically drive forward the improvement in productivity in the volume sector.”
Vehicle and chip manufacturers alike around the world have taken steps to do just that, particularly in the US and mainland Europe. Over the past few months, original equipment manufacturers (OEMs) have been working hard to forge stronger ties with semiconductor groups, while plans for numerous new factories have been earmarked to solely serve the semiconductor needs of the western world.
Ford, for example, has signed a non-binding agreement with New York-based chip developer GlobalFoundries to boost availability, while General Motors has sought partnerships with no less than seven chip suppliers to help increase supply.
Speaking on the challenge facing the European market, Oliver Zipse, President of the ACEA and Chairman of the board of management of BMW Group, said: “For the sake of our industry’s global competitiveness, Europe must strengthen its technological sovereignty to be able to provide essential components to the region’s core industries.”
Carmakers certainly seem to be getting the message. Europe’s largest chipmaker Infineon recently revealed that a record number of chips had been ordered by the auto industry – enough to fulfil 120m vehicle orders. To put that into context, the record number of vehicles delivered to customers in one year was in 2018, when 95m orders were fulfilled.
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