Automobile sector will face a loss of $110 billion due to chip shortage: Report

The semiconductor shortage that has created some serious ripples in the automobile industry, now faces a grim concern as the sector will endure losses mounting up to $110 billion that is almost double the earlier estimation of $61 billion as per a US agency’s report.

According to a Bloomberg report, carmakers around the world will lose about 3.9 million vehicles of production to the chip shortage this year which is more than 2.2 million as predicted a few months ago. It is about 4.6% of the 84.6 million vehicles that were projected in the total production for 2021, said the agency’s report.

The automakers who recently reviewed their financial reports did mention how the chip shortage has hit their production and the situation is not going to improve in the immediate future. General Motors Co. and Ford Motor Co. said that their second-quarter will see some serious dips as the companies are forced to idle factories due to lack of the essential components.

As per the report, Ford’s chief executive officer Jim Farley said that the company currently is redesigning its vehicles to use the most common and “accessible" chips and it also is planning to boost semiconductor inventory and sign contracts directly with chipmakers, rather than go through an auto supplier.

The crisis that began with pandemic-related production cuts took a worse turn after the fire in the chip factory in Japan and the snowstorms in Texas that hit many local semiconductor producers. This shortage has pushed the prices of new as well as used vehicles said the agency’s report. It also added that the recovery signs remain dim.

The report also said that the top priority for companies will be now is to mitigate the immediate short-term effects of this disruption, which may include everything from renegotiating contracts to managing the expectations of lenders and investors.