Retailers warn of chip crisis ‘unchartered waters’

  04 May 2021

For the second week running, senior auto industry execs have stepped up warnings to partners about the impact of the semiconductor shortage. Ford global production may fall 50% in Q2 as the chip crisis will “get worse before it gets better”, warned CEO Jim Farley. The company expects to lose 1.1m units of production in 2021 – significantly greater than earlier estimates of 200k to 400k vehicles. It may cost the company $2.5bn.

“We and many in the industry now believe the global shortage may not be fully resolved until 2022,” warned CFO John Lawler.

The company currently has 33 days’ supply of retail vehicles and the number is expected to tighten further. Ford has put in place new processes to help customers and retailers find specific models that may be hard to come by, revealed Mr Lawler.

Ford is scaling back production in Europe too, at its Cologne and Saarlouis plants, which build the Fiesta and Focus. Short hours will run throughout the summer until after the summer break on 16 August. Vehicles already ordered by customers will be prioritised.

In another sign of the escalating chip crisis, GM has idled a factory in Canada for two months. The plant builds the Equinox, GM’s second best-selling vehicle in the US. Analyst Sam Fiorani warned the supply chain issues are entering “unchartered waters”. Germany’s Bundesbank has also warned of slower growth due to the chip shortage.

Penske Automotive Group CEO Roger Penske said inventory is “not in great shape” after declining 20% since December and Group 1 Automotive CEO Earl Hesterberg said “we’re getting to the point where inventory is a problem, if not at this moment, very soon”. Asbury Automotive CEO David Hult called the supply situation “fluid” and if inventory levels in May match those from April, “we would struggle to get to the new-unit sales that we need”.

Tighter inventories are, however, currently helping drive retailer profits higher, added Ford’s Mr Farley. “10 years ago, I saw this industry go from 30 days’ supply back to 100. We’re not going to let that happen. This is a better way to run our business.”

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