The latest on the chip shortage

Todd Campau, S&P Global Mobility

Automakers are funnelling whatever chips they can get their hands on towards vehicles that make them the most money.

And that makes the most business sense, explained Todd Campau, automotive aftermarket practice lead at S&P Global Mobility.

The chip shortage has hit automakers hard since the start of the pandemic. As consumers bought more electronics while stuck at home, supply shifted away from automakers and to consumer electronics makers.

So with a limited number of chips available, automakers are picking which vehicles to build based on margins.

“We’ve seen a lot of activity with the vehicle manufacturers trying to manage the number of chips they’re putting on per vehicle, even de-contenting some vehicles,” Campau observed during his presentation 5 Trends impacting the North American Aftermarket at AAPEX 2022. “They’ve certainly been picking the vehicles to build based on the chips they have available, as well as the demand they’re seeing. They’ve been preferentially building high-margin vehicles — more trucks and things like that where they make more money.

“It’s a decision any of us would make with our business.”

And there’s also what Campau called “the toilet paper effect” — chip manufacturers don’t know what the real demand is. With companies ordering as much as possible, it’s hard to tell how much manufacturers actually need to produce.

“They’re trying to figure out what the real demand is from a vehicle perspective so that they can make the right chips and get the mix right to continue to build the vehicles,” Campau said.

There could be some relief coming, though it could be too late. Investments are happening to increase chip fabrication capacity. But it’s not like they can be built overnight.

“So while there is investment in that and we’re seeing movement there, the challenge is, by the time they come online, we may be through the chip shortage that we’ve been dealing with the past few years anyway,” Campau said.

There is one silver lining. With inflation and economic challenges, demand for products with needed chips may cool.

“And if consumer electronics sales reduce somewhat, they’ll provide more chips for automotive manufacturers to build cars,” Campau said.