There is a global semiconductor chip shortage. All types of electronics use semiconductor chips. Both your cell phone and automobiles have semiconductors. The demand and use of semiconductors have grown. Production has struggled to keep up with the demand for chips. The Canadian auto sector is seeing the effects. Auto production in Canada is on hold as a result of semiconductor shortages. Therefore, many employees experienced layoffs. The automotive industry is suffering. Consider reading Financial Guidance for Navigating COVID-19, if you lost your job. If you’re wondering, “why is there a semiconductor shortage?” continue reading below.
How Covid-19 caused a global shortage of semiconductors and computer chips
There was a struggling semiconductor supply chain before COVID-19. With worldwide lockdowns, semiconductor companies stopped production for some time. This delay in production was the tipping point. It put already strained factories behind. The core issue is that semiconductor factories are complex and expensive. The main semiconductor production occurs in Asia. Increased global shipping and oil costs impact production. There is a greater need for increased output in North America and Europe.
Building more factories both in Asian markets and in other markets is challenging. It takes a long time and a lot of money to build these factories and train the labourers. Many countries and companies have been acting. Planting billions of dollars in investments from before the pandemic. Unfortunately, many tech companies stockpiled semiconductor chips at the beginning of the pandemic. Every day, there is more dependence on technology. People working from home need computers and laptops. Demand continues to increase. Instable supply has caused a shortage of needed electronic chips in all industries.
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Semiconductor chip shortage could extend through 2022
U.S. President Joe Biden has signed an executive order. The government will review critical supply chain needs and respond accordingly. Global chip companies AMD and TSMC are also acting. They are investing $20 billion and $12 billion in chip factories in Arizona respectively. It can take 18 to 24 months to have new factories up and running.
In the long run, this is good news. But it does mean semiconductor shortages can last until mid-2022. Expect the shortage to improve by that time. Continued investments and geographical production diversity will have to continue. The chip industry will address production concerns.
Canadian auto production is hit by global semiconductor shortage
Before 2019, Canada produced 2.2 million vehicles each year. In 2021, Canada will produce 1.2 million. In 2020, Canada produced 1.4 million. A return to pre-pandemic production would show a stabilizing auto-sector industry. As COVID-19 restriction and health concerns improve, vehicle production has decreased. This is a direct result of semiconductor shortages.
Some of the biggest car manufacturers temporarily closed two plants in Ontario due to chip shortage
American brands like Chrysler, General Motors, and Ford have the largest shortages. These companies have to divert semiconductor chips. They are prioritizing profitable vehicles like pickup trucks and SUVs. They put minivan production in Windsor, Ontario on hold. As well as sedan production in Brampton, Ontario on hold. Ford Edge production is on hold in Oakville, Ontario. General Motors’ CAMI plant in Ingersoll, Ontario had to lay off employees.
For now, Asian brands like Toyota, Honda, and Nissan are fine. They seem to have better access to semiconductor chips. They continue to have better production levels. But they are still facing chip shortages. They may have to halt production on some vehicles too.
Double-digit unemployment in Windsor, ON due to microchip shortage
The Windsor auto manufacturing sector employs 40,000 to 41,000 people. The Stellantis Windsor Assembly Plant shut down for many months in 2021. The plant’s shut down affected manufacturers of auto parts, who supply parts to the plant. Laid-off employees were between 5,000 to 7,000 as a result of the chip shortages and production holds. Many dealerships are scrambling to fill their lots with used vehicles. Often selling vehicles outside their usual brands. Many workers worry about their finances.
Even more products will fall foul of the shortage over Christmas
Semiconductor chips are in a wide range of products. Some products often use many semiconductors. For example, computers need semiconductors in many components. Without the semiconductor in one part, the whole computer would not work. Additionally, some companies have orders for specific parts that have a 12-month wait. Apple has even said to expect lower iPhone sales due to a lack of semiconductors. This shortage will likely last until mid-2022. This means increased prices and decreased supply of many typical holiday gifts.
Global supply chain delays, shortages could hike prices and limit the available options
Whenever there is a decreased supply and increased demand, prices rise. This will happen with all consumer electronics until the semiconductor supply stabilizes. The auto sector has already diverted chips to high-profit vehicles. Many companies will be making hard decisions on what products to produce. This will limit choices and make those products more expensive.
Many companies may accept pre-orders on “in-production” products. These pre-orders can face delays. This is especially true if the semiconductor situation doesn’t improve or worsen. The global supply chain of semiconductors currently puts a large strain on Asia. For example, transportation and shipping costs have skyrocketed. Consequently, with increasing costs, semiconductors will be more expensive and cost consumers more.
What to do
Furthermore, with the unstable Canadian manufacturing industry, many fear what the future holds. You may be wondering, “when will the semiconductor shortage end?” This is hard to say, most experts believe the situation to improve by mid-2022. In the meantime, shy away from any unnecessary electronic purchases. You may need support if you faced a layoff from the unstable manufacturing industry. In addition, the Canadian government may have financial aid available, like employment insurance. Balance your finances as best as possible. If you find yourself in debt or overwhelmed, seek professional support. Many Canadians have suffered as a result of COVID-19. Consider Consolidated Credit Counselling Services for professional financial support.
