CIIT/FA20-BAF-003/LHR

COMSATS UNIVERSITY ISLAMABAD

Lahore Campus

Global Business Management

Assignment # 1

Chips Shortage in automotive industry

Submitted by: Muhammad Hammad

Submitted to: Sir Affan Ahmed Khan

Registration Number: FA20-BAF-003

1. Chip shortage to keep car prices high, inventory low until end of 2022, analysts say

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In 2020 as the pandemic hit the car makers reduced or cancelled the orders of semi-conductor chips
which were used in their cars expecting that the demand of cars would get low because of the pandemic
but as per their surprise cars demand got higher as people start preferring their own vehicles instead of
public transport due to the pandemic.

Then makers of computers, video games came into sight and grabbed those chips from the market
which caused the shortage of the chips from the market.

Because of this massive shortage of chips companies started to cut their production but the companies
like GM and Ford are working with chipmakers to develop new manufacturing capacity to deal with this

massive shortage Biden administration is trying to pass legislation that would see US$52-billion go
toward domestic semiconductor production.

But building these semiconductor fabrication plants take years so it is forecasted that prices of these
cars are not coming down till the end of 2022 and customers have to deal with longer lead time and high
prices of used vehicles.

2. Global chip shortage: Toyota profits fall as production hit

Chips shortage just like other manufacturers also hit Toyota as in September Toyota had to reduce its
production by 40% because of the chip crisis but still Toyota remains world biggest car seller as it
widened its lead over nearest rival VW.

Toyota is well prepared for this global chip shortage as compared to its competitors because it has faced
a similar kind of situation a decade ago in wake of earthquake and tsunami as it damaged chip making
factories which caused disruption in production for Toyota and others but then Toyota started
stockpiling of these chips so because of that Toyota is well prepared as compared to others

But those stocks are running low as pandemic dragged on so now Toyota is expecting to miss its global
production target.

Chipmakers are trying to attract customers in auto sector after they know the size of this market in this
chip crisis and because of EV as it is now using more advanced technology and as Toyota lacks behind in
EV sector because of its focus on hybrids now Toyota have to enter in EV market if it wants to retain the
title of world’s biggest car seller.

3. The chip shortage is so bad GM dropped heated seats in winter

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Chip shortage is making a huge problem in automobile industries as deliveries of these cars are getting
late due to this chip shortage now General Motors have decided to drop heated seats this winter from
their cars

With no proper solution of this chip shortage automakers are forced to cut popular features from their
vehicles.

There are talks of developing more semi-conductor chips but it can take years and billions of dollars to
extinguish this problem.

References

1. Atkins, Emily. “Chip Shortage to Keep Car Prices High, Inventory Low until End of 2022,
Analysts Say.” The Globe and Mail, 18 Feb. 2022,
https://www.theglobeandmail.com/drive/mobility/article-chip-shortage-to-keep-car-prices-
high-inventory-low-until-end-of-2022/.

2. Oi, Mariko. “Global Chip Shortage: Toyota Profits Fall as Production Hit.” BBC News, BBC, 9
Feb. 2022, https://www.bbc.com/news/business-60313571.
3. Ferris, R. (2022, February 20). The chip shortage is so bad GM dropped heated seats in Winter.
CNBC. Retrieved February 20, 2022, from https://www.cnbc.com/2022/02/20/the-chip-
shortage-is-so-bad-gm-dropped-heated-seats-in-winter.html

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