Skoda forced to either reduce or pause production due to chip crisis

Skoda Auto, a Volkswagen unit and the Czech Republic's biggest exporter, will "significantly reduce or even halt" production from Oct. 18 until the end of the year due to the global shortage of chips hobbling the automotive sector.

Carmakers around the world are struggling with a lack of semiconductor chips amid a post-pandemic rise in demand, and the disruption is hampering the Czech economy and others in central Europe reliant on the auto industry. "Not even Skoda Auto is able to avoid this global crisis," Skoda Auto spokesman Tomas Kotera said. The expected production curbs are the biggest so far in central Europe, and economists said they would lead to a cut in Czech growth forecasts.

Skoda, the backbone of the country's car sector that employs 180,000 workers and makes up quarter of industrial output, has already stocked up tens of thousands of cars finished but awaiting chips. Dealerships are reporting months-long waits for new cars. Kotera said the firm wanted to focus on getting the backlog of almost finished cars to customers as soon as possible.

Due to Skoda's outage, overall car production should be similar this year to the 1.15 million cars made in the "covid" year 2020, the Czech Automotive Industry Association said. Previously, the association expected 1.3 million cars to be produced this year. Skoda, which employs 35,000 and said it remained committed to maintaining jobs, predicted a gradual calming of the situation for chips in the second half of 2022. The uncertainty in the car industry is becoming a major drag around central Europe, forcing economies to rely more on a rebound in services or household spending to drive growth.

Data on Thursday showed Czech industrial output fell in August year-on-year for the first time since February amid a sharp drop in car production due to extended holidays. Hungary, where carmakers likes Mercedes and Suzuki have had to limit some production, also saw output growth shrink more than expected because of the car sector. Output in Germany, the region's key trade partner, slumped in August.

The Czech Republic is home to three car manufacturers. Besides Skoda, which also halted production at the end of September, Toyota has faced outages, including last month. "Automotive is not getting out of the trenches just yet, and that means bad news for the whole industrial sector, and that actually means bad news for GDP (gross domestic product)," Raiffeisen analyst Vit Hradil said, adding he would look to revise his forecast for roughly 3% economic growth this year.