The global semiconductor shortage is hitting automotive manufacturers where it hurts, which will inevitably lead to job cuts across the supply chain.
We are already starting to see this with Stellantis, the car company formed by the merger of Fiat and Peugeot, saying it will cut over 1,600 jobs at its Illinois Jeep plant.
Elsewhere, the first sign of job cuts will be found in production cuts. Ford Motor Co has outlined a series of plant shutdowns due to the chip shortage, with five facilities in the US and one in Turkey affected. They have also cut output in Europe.
Volkswagen AG has also sounded the horn, warning that chip shortages will curb output in the coming months of 2021. VW expects worsening production from the chip shortage and for it to affect all their cars groups, including SEAT and Audi.
Billions in losses
Job cuts appear to be inevitable across the automotive industry as manufacturers count the cost of production constraints caused by the chip shortage.
It is estimated the global auto industry will take an £80 billion hit in 2021. Several manufacturers have come forward with their own estimates. Ford says the chip shortage will cost them up to $2 billion in 2021 alone.
Unfortunately, it is ordinary workers who will be punished. With fewer cars to make, workers involved in the manufacturing of cars will be cut first. We have already seen this with Stellantis. Other manufacturers will likely follow.
Why the chip shortage?
Modern cars have more than 1,000 chips in them and the smartest, most connected models, such as those with ADAS systems, have over 3,000 chips. So, even a small supply constraint can set back production.
However, this is no small supply constraint.
It appears that no auto maker is immune to the chip shortage brought about by cancelled orders at the peak of the coronavirus pandemic.
When the coronavirus pandemic hit, auto makers cancelled chip orders. Electronics manufacturers filled this gap in demand with soaring sales. Now that auto makers need to ramp up chip orders again, they have nowhere to go because most chip makers are running at 98-100% capacity making chips for other booming sectors.
This has caused a global semiconductor shortage that has affected all industries and all players. Even Samsung, who make their own chips, are struggling. The shortage is predicted to last 1-2 years until new foundries become operational.
The semiconductor shortage will not last forever, and people need cars. Production will accelerate in the years to come. However, jobs may still be at risk.
Sadly, the chip shortage could accelerate digital transformation in manufacturing facilities, with the displacement of human workers for machines.
This is commonplace, but traditional brands may now seek a permanent solution to job cuts through technology. Automated plants are inevitable.
In any case, the future of the automotive industry is bright so long as you extend your horizon. The chip shortage is likely to last for the next 2 years. If you work in the automotive sector, strap yourself in. There is more drama to come.