New forecast says chip shortage to cost the car industry $210 billion

The ongoing global shortage of semiconductor chips will hit carmakers harder than experts had initially forecast in May as COVID-19 continues to disrupt chip production.

A report released Thursday by consulting firm AlixPartners said the chips crisis will cost the global auto industry $210 billion in revenues this year. That's almost double its estimate in May of $110 billion.

AlixPartners forecasts that automakers will lose production of 7.7 million vehicles this year. In May, it had forecast a production loss of 3.9 million.

“Of course, everyone had hoped that the chip crisis would have abated more by now, but unfortunate events such as the COVID-19 lockdowns in Malaysia and continued problems elsewhere have exacerbated things,” said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners in Southfield.

The chips are used in a variety of car parts. The worldwide shortage started earlier this year, in part as a result of the COVID-19 pandemic. As people increasingly worked from home and kids were home-schooled, the demand rose for the personal electronics that the chips are used in.

Then, when the auto companies restarted their plants after an eight-week shutdown last year at the peak of the pandemic, the carmakers scrambled to make up lost vehicle production. They needed the chips too for the cars. Soon, chipmakers could not keep pace with overall demand.

Since early this year, General Motors, Ford Motor Co. and Stellantis each have had to pause production, idle plants or build vehicles just short of the chips parts and then park them to wait for the parts to arrive before completing the vehicles and shipping them to showrooms. In the meantime, dealership lots are all but barren of new-vehicle inventory and customers face long waits and higher prices to buy a new car.

On Tuesday, GM President Mark Reuss said the chip supply will likely stabilize at lower-than-normal levels. But Reuss, who spoke at the 2021 Mackinac Policy Conference on Mackinac Island, said demand continues to outpace supply, especially as more automakers seek to use the chips for future electric vehicles. It pushes back the timeline for “normalization” of chip supply, he said.

GM recently warned that the third quarter would be challenging for it. The automaker said it will build 200,000 fewer vehicles in the second half of the year compared to the first half. GM had previously estimated building 100,000 fewer cars in the second half.

There are no "shock absorbers left in the industry right now when it comes to production or obtaining material," said Dan Hearsch, a managing director in AlixPartners’ automotive and industrial practice.

In a statement, Hearsch said nearly any shortage or production interruption in any part of the world affects automakers. The impact is "amplified" due to other shortages.

The "chips are just one of a multitude of extraordinary disruptions the industry is facing — including everything from resin and steel shortages to labor shortages," Wakefield added. "There’s no room for error for automakers and suppliers right now; they need to calculate every alternative and make sure they’re undertaking only the best options.”