Inside the industry: the indirect impacts of the chip shortage

When times are tight, cash is king – and for many car makers, with the millstones of the chip crisis, pandemic, rising raw material costs and more dragging behind them, times have never been tougher.

But as they continue to tighten the screws, reducing spending in every conceivable way, from squeezing suppliers to cutting off marketing, spare a thought for those caught in the ripple effect. Around 150,000 people work directly in manufacturing intheUK–butatleastfive times that number have jobs that depend directly on cars being bought, sold and maintained, and a huge multiple of that benefit from the tax, spending and more generated as a result.

So while we look in wonder at the record profit margins coming out of many manufacturers and retailers as they seek to optimise a crisis, consider the litany of industries caught in that spending freeze. For a brief time, cars were being made ready for semiconductors to be dropped in at a later date; now in many cases they’re just not being made.

As a result, it seems almost inevitable that the car industry is set to be a laggard in terms of post- pandemic recovery. Globally, automotive accounts for around 3% of all econoic output, but in the UK and Germany, for instance, automotive exports are reckoned to be the most economically valuableoutput bar none. For many nations, if automotive is suffering, so too are they – and on this occasion, there’s no obvious solution but to just grin and bear it.

Last quarter’s financial statements underlined that alarm. Low points include Jaguar Land Rover revealing it has outstanding orders for 125,000 cars it can’t make and BMW and Mercedes indicating that the semiconductor crisis might not be fully resolved until 2023. While those order banks are a sign of good times to come, that’s cold comfort for businesses going to the wall or workers facing redundancy now.

Remember, too, that it was exactly this kind of single-minded saving that caused the crisis in the first place. Semiconductor orders were cut because nobody was buying cars, with little to no consideration for the fact that suppliers would find business elsewhere. Could it happen again?

On a small scale, stories of high-precision, highly skilled engineering firms diversifying into new areas are already circulating.

Nor will the turbulence faced by the car industry end when semiconductor supply ramps up. Raw- material prices are rising across the board, the spectre of electrification remains and how we buy, own and drive cars is in question.

In that change lies huge opportunity – but how many will be prepared to wait to be able to seize it?