A discussion about the impact of the semiconductor shortage on automotive manufacturers, with Dan Hearsch, Managing Director, lead of the Automotive Practice in the Americas, and co-lead of the Global Automotive and Industrials Practice, with AlixPartners.

The shortage of semiconductor chips that go into automobiles has resulted in numerous plant shutdowns and severe interruptions of supply. The crisis is far from instantly correctible, says Hearsch, due to long order lead times involved in securing the chips, which must pass through multiple stages of production before they’re available at the plant. The whole process can take hundreds of days, with manufacturers limiting guaranteed orders to a four- to six-week window.

The present problem is in part the result of under-ordering of chips by auto manufacturers last year in response to tepid sales. When demand spiked, it was too late to alter those orders. Exacerbating the situation were plant shutdowns due to quarantine restrictions, and shortages within other parts of the supply chain, including the plastics used as backing for wafers. All of which presented few if any opportunities for accelerating production when demand materialized.

Hearsch says the crisis should begin to abate in the third quarter of this year. “This is awfully painful,” he says, “but it’s transitory.” Still, a return to “normal” for automotive supply chains isn’t likely. Even before the COVID-19 pandemic hit, manufacturers were beginning to diversify their sourcing of chips and other critical components, to mitigate the risk of supply-chain disruptions. That trend should continue, as automakers look to Europe and the U.S. as additional locations for producing semiconductors. “We’re seeing a correction to localization,” he says. But don’t expect such shifts to have an impact in the short term. It takes years to get a new semiconductor plant up and running.