The Virus Is Hitting Carmakers, Too

A shortage of chips —crucial for today’s autos — will cost the industry up to $61 billion in sales

- Katrina Nicholas, Keith Naughton, Gabrielle Coppola, and Debby Wu

When the Tohoku earthquake and tsunami ravaged Japan in 2011, ocean water flooded factories owned by Renesas Electronics Corp. Production at the swamped facilities ground to a halt—a major hit for Renesas, of course, but also a devastating blow to the Japanese car industry, which depended on Renesas for semiconductors. Lacking chips for everything from transmissions to touchscreens, Honda, Nissan, and Toyota were forced to shut down or slow output for months. As the perils of just-in-time manufacturing and the dangers of relying on a single supplier for key components became obvious, automakers vowed to steer clear of similar snafus in the future.

Yet a decade later, the global auto industry finds itself in an almost identical predicament. The catalyst for the breakdown this time is a slower-moving natural disaster: the coronavirus pandemic, which has disrupted the supply chain for makers of the electronics that are the brains of modern cars. That left automakers—which have long eschewed maintaining costly inventories of parts—scrambling to secure those components when sales rebounded. The shortage could lead to more than $14 billion in lost revenue in the first quarter and some $61 billion for the year, advisory firm AlixPartners predicts. The industry is “wedded to ‘lean manufacturing,’  ” says Tor Hough, founder of Elm Analytics, an industry consultant near Detroit. “They have gotten in this mode of just managing for next week or next month.”