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Article written by Effective Media – The analysis and opinions expressed in this article are those of the author only and not those of OPENLANE Europe.

“Semiconductors.” Until recently, the word was hardly known, but these days, it is often under discussion. After all: the fact that your car, Playstation or computer will be delivered later than planned, all has to do with this one little thing. But what is it, and why is its production lagging so much behind?

At the height of the corona crisis, measures shut down almost 90% of vehicle and parts factories in China, North America and Europe. At the same time, car manufacturers have greatly reduced the purchase of semiconductors because far fewer cars were sold. After all, car brands work according to the just in time principle, whereby they keep as few parts as possible in stock to reduce logistics costs.

Chip chortage

What did, however, pass smoothly over the counter during the corona crisis were computers, TVs, other consumer electronics and medical equipment. It was therefore these sectors that placed high orders with the semiconductor manufacturers, while the car industry held back a while longer with its orders.

The result: when the car market picked up again in the third quarter of 2020, it led to supply problems. After all, they were at the back of the queue. And because so many orders have been placed with the semiconductor manufacturers, we are now facing delivery problems. There is no such thing as a quick solution, because the average lead time for semiconductor factories to deliver the orders to customers is 26 weeks.

Long lead times

To make matters worse, a fire broke out in March this year at Japan’s Renesas, a giant manufacturer that specializes in so-called ‘legacy chips’ that are used almost exclusively in the automotive sector. And it turns out to be a tough one to get production back up to standard: Renesas is reportedly still not working on pre-corona capacity. And so everything adds up.

We hear rumblings about delays from many car manufacturers. Ford expects production to fall by 10 to 20% and operates only on basic utilization. As a result, orders for the Ford Focus are delayed by about a month. Volkswagen expects an impact on the vehicles of its MQB platform, which includes the Golf and the Tiguan.

Nissan and Honda have paused production in the UK for now due to supply problems and Daimler predicts – cautiously – that they will be able to compensate for the lost volume of Q1 in the rest of the year. Only Toyota, which secured a stockpile of semiconductors for several months in advance, is confident that production will not be affected. Problems also do not seem to be on the agenda at Hyundai-Kia, Polestar and MG. After all, most of these brands manufacture many of their own components. Or how the saying “what you do yourself, you do better” suddenly seems to be working in the automotive industry as well.

After all: for a new Dacia Spring, according to the German magazine Auto, Motor & Sport, you have to be patient for 12 months. The BMW i4 and iX (both 9 months) hardly do better, the Mercedes A-Class 250e (the plug-in hybrid version, ed.) takes a year. The Peugeot 3008 and the Citroën C4 Cactus also have a long wait. Both models will only be in your driveway in 8 months’ time.

To a European semiconductor factory?

How can we prevent this in the future? The most obvious solution is to produce semiconductors ourselves. Although Europe still has many car factories, it is still very dependent on Asia for the production of semiconductors. Although that will be greatly reduced in the future, if it depends on the President of the European Commission, Ursula von der Leyen. She was ambitious in her State of the Union at the beginning of September: Europe must be responsible for the production of these parts itself. “This is not just a question of competitiveness. It is also a question of technological sovereignty.”

“Semiconductors are an indispensable pivot in the digital economy, but due to a shortage of them, entire production lines in Europe are already working at half strength”, von der Leyen explained. The demand is rising enormously, but at the same time, Europe’s share in the value chain has decreased. “We depend on advanced chips from Asia,” she noted. That is why the Commission wants to propose a new European law on chips. “The goal is to jointly create an advanced European ecosystem for chips, which also includes production. This should ensure our security of supply and develop new markets for breakthrough European technology,” von der Leyen said.

And what about used cars?

Because leasing companies – by necessity – had to renew many leasing contracts, there are also fewer end-of-contract cars available on the second-hand market. This is also noticeable with OPENLANE, where the inflow of vehicles on the platform is lower than normal. But in the end, those lease cars cannot be extended indefinitely. So, it’s only a matter of time before they do come on the market.

Another factor that will play a role in the coming years is the electrification of the fleet. Will this reduce the demand for cars with internal combustion engines? Not according to Frank Van Gool, Managing Director of Renta: “The vast majority of our cars with internal combustion engines still go abroad today, especially Eastern Europe. And we think that this will remain the case for a few more years because greening is slower there.”