The chip and semiconductor shortages have impacted the supply chain of OEMs, aggressively leading to a decline in the overall business. However, manufacturers are hopeful about revival in the near-term and are predicting numbers to go back to pre-COVID levels. We take a closer look at how all of it has impacted the supply chain and much more.
The chip and semiconductor shortage has grappled the automotive sector intensely. With production halted and manufacturing impacted globally, automotive supply chain shortages are now withstanding a nightmare for original equipment manufacturers (OEMs). Analysts opine that due to these challenges, the automotive industry is facing a huge decline in business by 70% in the last three months. Besides, the demand for commercial vehicles (CVs) has rebounded to its pre-Covid scenario. Hence, the supply of semiconductors is impacting the overall business of OEMs. Rajesh Menon, Director General, Society of Indian Automobile Manufacturers (SIAM) says, “The passenger vehicles sales in October 2021 were down by 27.15%, in comparison to the same time last year. This is mainly due to the semiconductor shortages.”
CURRENT SUPPLY AND DEMAND
The major OEMs are trying new models to deal with the current scenario. Shashank Srivastava, Senior Executive Director, Marketing & Sales, Maruti Suzuki India Limited says, “The semiconductor problem has been going on for some time and is globally prevalent. Globally, all automotive manufacturers and companies are facing the problem. This has happened due to several supply constraints and the different demand patterns which have risen after Covid lockdowns.” Besides, the demand has made a strong comeback which has led to a semiconductor shortage. However, companies like Maruti, the largest car manufacturer in India, have managed to deal with this challenge in the early part of the year. Mr Srivastava states that the company has been adjusting its production from one model to another when semiconductor chips weren’t available. But towards the end of August 2021, nothing helped, leading to a high semiconductor and chip shortage. “We lost 60% of our production in September and 40% in October, due to the shortage,” he confirmed.
Similarly, Sachin JKS Haritash, Director, Chetak Logistics says, “The worst was in October and currently overall 30% of the supply chain is impacted.” Adding on Preetam Mohan Singh, Senior Vice President, Praxis Global Alliance observes, “Roughly 40-50% is the average production cut that the OEMs have faced in the last four to three months. Overall, 30% sales, in comparison to pre-Covid could have happened incrementally during the festive season due to the chip shortage.”
“During the peak times, automotive companies usually do business at 125%. This festive season it was just 60%. Hence, its impact is majorly faced by transport companies. Currently, all automotive logistics companies are working at 60% levels of pre-Covid time. Last year, things improved post-Diwali. But this year, since September, things have not improved. Therefore, any automotive logistics or OEMs will face a decline of business by 20- 25%,” adds Mr Haritash.
The industry is reeling, not just under the challenge of semiconductor or chip shortages but several others. “Commodities like steel, platinum, precious metals have witnessed a huge price rise leading to another challenge for the automotive industry,” adds Mr Srivastava. Besides, the profitability gets impacted due to price rise. Steel went up from INR 38 to INR 78 per kg in the last six months, he added.
On the other hand, the rise in fuel prices have also impacted the overall automotive supply chain. “There has been a steep increase in freight prices due to rise in petrol and diesel prices,” says Mr Haritash. “The industry is cyclical, hence the manufacturing of parts impacts the supply chain,” he adds. Srivastava says, “The capacity of steel making in China has reduced which led to price rise across the globe.”
Another factor that has impacted the automotive sector is the introduction of BS-VI. “Due to BS-VI, no new transporters have bought new vehicles.
Hence, the cost of fabrication has increased by almost 30%. The revenue has been impacted,” says Mr Haritash.
According to Mr Singh, “The price rise is a conventional problem. BS-VI also led to an increase in price. Everything has a cascading effect.
However, we will have to watch as companies ramp up their capacities. The global big OEMs. I believe that the rebound will happen by 6-8 months.
This is an abridged version of the original story that was published in the December edition of the Logistics Insider magazine. To read the complete article, click here.