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Semiconductor threat hits German auto sector

The German auto sector could be teetering on the brink, according to the country’s Handelsblatt newspaper.


Pete Carvill

The German auto sector could be teetering on the brink, according to the country’s Handelsblatt newspaper.

In a story published this week, it was reported that “the serious bottlenecks in global semiconductor production are plunging Germany’s car transporters into an existential crisis”.

The paper was speaking to Wolfgang Göbel, president of the European industry association ECG, who said that orders for new cars had collapsed since the end of the summer. This was caused by a dearth of the microchips needed in production, he added, and the problem was spreading across Europe.

“The lack of microchips is causing the number of deliveries across Europe to shrink enormously,” reported Handelsblatt. “In the UK, new registrations for all cars fell by almost 35% in September, while the number of new car registrations across Germany was 26% below the previous month. The figures for 2021 are not even expected to reach the weaker level of the previous year due to the pandemic, believes the President of the Association of Car Importers (VDIK), Reinhard Zirpel.”

Within Germany, it was reported that Volkswagen closed its main plant in Wolfsburg for two weeks at the beginning of this month because of the chip shortage, with Opel performing a similar move for three months with its plant in Eisenach. Skoda has also warned it will “significantly reduce or even discontinue” production between mid-October and the end of 2021.

Supply and demand imbalance

The situation appears grim. In May, McKinsey released its own report on the shortage, called Coping with The Auto-Semiconductor Shortage: Strategies for Success. That report said: “In the short term, we don’t see any indication that the current supply and demand imbalance for semiconductors will resolve. That’s because typical lead times for semiconductor production can exceed four months for the products that are already well established in a manufacturing line.

“Increasing capacity by moving a product to another manufacturing site usually adds another six months (even in existing plants). Switching to a different manufacturer (for example, changing foundries) typically adds another year or more because the chip’s design requires alterations to match the specific manufacturing processes of the new manufacturing partner. Additionally, chips can contain manufacturer-specific intellectual property that may require alternations or licensing. Also, alternative suppliers in the auto industry must go through a lengthy and complex qualification process.”

Furthermore, August saw the German company Bosch argue “supply chains in the automotive industry are no longer fit for purpose as the global chip shortage rages on”. Those comments were made to CNBC. Expert Investor has itself touched on the chip shortage story in recent months, around the news that Samsung had seen a surge in quarterly profits due to its manufacturing of the item, as demand has continued to far outstrip supply.