Carmakers Get Inventive As Global Chip Crisis Bites

Whether buying computer chips directly from manufacturers, reconfiguring cars, or producing them with parts missing, automakers are having to get creative to cope with the global shortage of semiconductors.

The shortage, due to supply problems and a surge in demand for consumer electricals during the pandemic, has hit the auto industry hard, with millions of vehicles worldwide not being produced because important parts are missing.

With the problem lasting longer than initially expected, manufacturers including Daimler and Volkswagen have had to rethink production strategies.

Car manufacturers usually buy parts from major suppliers such as Bosch and Continental, which in turn buy from suppliers further down the chain.

McKinsey's Burkacky said carmakers should consider direct investments in production, or longer contracts with terms of more than 18 months.

In some cases that has led to a lack of transparency, said Ondrej Burkacky, a senior partner at McKinsey.

"There was the fallacy of thinking that you had a choice between two suppliers, but the truth is that they both had the chips made in the same foundry," he said.

That is now changing, according to Daimler Purchasing Manager Markus Schafer.

The German maker of Mercedes-Benz cars has set up a direct line of communication with all chip suppliers, including wafer producers in Taiwan, he said at the IAA auto show in September.

Volkswagen boss Herbert Diess speaks of "strategic partnerships" his company has entered into with manufacturers in Asia.

Chip suppliers need to be treated differently given their strategic importance to the industry, said Stefan Bratzel from the Center for Automotive Management.

"You have seen the problems that arise when you treat the chip companies like other suppliers and stop the calls," he said.

McKinsey's Burkacky said carmakers should consider direct investments in production, or longer contracts with terms of more than 18 months.

"Not much of that has been implemented yet," he added.

Volkswagen recently had to temporarily stop the production of electric cars in its Zwickau plant in Germany.

PRIORITISING

Some carmakers are stockpiling - or what BMW calls "hole shoring."

The whole car is built except for a missing part, and can then be completed relatively easily when it shows up.

Other automakers are also using this strategy. Sometimes vehicles are delivered without certain functions controlled by chips.

Semiconductors are also conserved for high-quality vehicles, like electric cars, while customers face even longer wait times for low-priced combustion engines.

That strategy is slowly reaching its limits. Volkswagen recently had to temporarily stop the production of electric cars in its Zwickau plant in Germany.

How well these coping strategies work is not yet clear.

"The bill will be presented in mid or late 2022, when you can see who came out of the crisis well and who did not make it so well," said McKinsey's Burkacky.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)