Chip shortage shows need for new thinking

New things in this business go according to plan.

The latest rogue wave to slam automakers and those who rely on them is a global microchip shortage that threatens to pull as many as 1.3 million vehicles out of production this year, according to one forecast. At an average retail price of $40,000 per vehicle, that's a giant potential $52 billion economic hit at a time when automakers and suppliers are trying to get their finances back into calm waters during the pandemic.

But what is most notable about this latest crisis is just why there aren't enough microchips available to service the automotive industry.

Yes, COVID-19 certainly played a role in limiting supplies for a time. But what's exacerbating the problem is that the auto industry is increasingly competing with a vast array of divergent industries, including giant consumer electronics makers, for limited quantities of chips.

Microchip use within automotive manufacturing has exploded in recent years, thanks to the proliferation of electronic instruments, big-screen infotainment systems and chip-aided driveline components.

Automakers like to crow about their growing technological prowess but software still has to run through microchips to work.

What's now tripping up the industry is that individual companies all up and down the supply chain are fending for themselves to acquire the humble chips they need. There are chip issues at Tier 1, others at Tier 2 and others at Tier 3. One company boasts that it has succeeded in securing all the chip supply it needs, another company frets that it will have to halt product lines A and B in order to keep product line C moving.

It's worth asking the question: Shouldn't automakers begin supporting their entire supply chains in acquiring this commodity that has become critical enough to stop a speeding train? Automakers forecast how many vehicles they will build. They know — or should know — how many microchips that will require. Let's have entire supply chains buy what they need in cooperation.

That is a radical departure from traditional purchasing department thinking. But the thought of 1.3 million missed vehicles is motivation enough to start rethinking.