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News Article

2Q21 More Challenging Than 1Q21 Due to Chip Shortages

By Alejandro Enríquez | Mon, 04/26/2021 - 18:16

Chip shortages continue to disrupt the automotive industry and large auto groups warn of the potential impact the shortage could have during 2Q21. Alterations in semiconductor production are expected to last until 2022, according to IHS Markit, affecting not only automakers but also dealerships. Mexico, home to 12 OEM manufacturing plants, is not exempt.

Over the weekend, Wayner Griggiths, President of Seat (a filial of Volkswagen AG), told the FT about a “probable” more challenging 2Q21. "We are being told by suppliers and within the Volkswagen Group that we might face considerable challenges in the second quarter, probably more than in the first quarter," he said. The group, Reuters reports, has warned managers to prepare for a bigger production hit. The impact for the group has been of about 100,000 cars that were not produced.

Another German Giant, Daimler AG, has also expressed concerns on the impact the shortage of chips and the CFO of Daimler, Herald Wilhelm, said in a conference call that even though underlying car demand remained strong, chip shortage had prevented sales from reaching their "full potential." Daimler had to halt production at two Ferman plants but expects full production to recover by the end of the year.

Dealers in the US Experience Unforeseen Profit

Car dealers in the US are experiencing record profits amid automakers' production halts. AutoNation Inc, the largest US dealer group, tripled its profits as customers are agreeing to pay full price in advance to secure their desired model, according to Reuters. Online inventories at different dealerships allow customers to evaluate their options and often they are willing to pay full price and wait for their vehicle.

As automakers cut production, vehicles in stock are decreasing and additional costs needed to sustain full lots at dealerships are also going down. However, the unexpected rise in profits may be followed by a lack of available models. Vehicles will leave the dealer with outstanding green numbers for a moment but there only a few vehicles that will fill in those empty spaces. Reuters recalls testimonies from dealers who are used to sell 225 cars a month but are only left with 150 cars on the ground.

Chip Shortages Land in Mexico

Production shortfalls in the US and Europe are starting to influence the Mexican market. During February and March, automakers announced reduced shifts or halts at their production lines. That being said, chip shortages have not heavily influenced the availability of models. "We saw a very small impact on the Tundra, which comes from a San Antonio plant. The rest of the models are fine," said Tom Sullivan, CEO of Toyota Motor Sales de México during a conference call announcing Toyota Mexico's 1Q21 results.

Companies are focusing their efforts in producing vehicles that are on-demand and provide greater profits for dealerships, such as SUV and pickups. Unlike the US, in Mexico dealership association AMDA has warned customers of potentially fraudulent practices in so-called online dealerships' auctions of older models. "There is no problem of high inventories at dealership networks, much less a massive offering of 2020 models," said Guillermo Rosales, Director General of AMDA.

Photo by:   Badar ul islam Majid
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst