Chip shortage continues its drag on auto industry

Customers have to wait 14 months to get a Kia Sportage hybrid SUV. [KIA]

Automotive part suppliers had a terrible 2021 — and 2022 doesn't look much better.

They have one big problem shared by the entire auto industry: chips. Due to a supply shortage in chips for cars, production plummeted — shrinking their orders.

One businessman in Daegu makes navigation devices for cars. The price of car navigation chips has shot up 150-fold over the past year.

“The chip price surged from 16 cents early last year to $24 these days,” he says. “So we are now operating at a loss of 300 ($250,731) to 400 million won every month.”

The losses began last June, and aren't ending anytime soon.

“It's getting more and more frustrating," he says, " since we need to meet deadlines, but can’t raise the product price enough" to make up for the increased cost of chips.

The global shortage of semiconductors for automobiles started in 2020, driven by production halts caused by Covid-19 lockdowns, the U.S.-China trade war. The global economy rebounded causing a sudden hike in automobile demand, catching chipmakers by surprise.

Experts forecast that the auto chip supply will rebound within the first half of this year, but the auto parts industry wonder how much that will help.

According to the Korea Automotive Technology Institute (Katech) and Bank of Korea, the average operating profit margin for some 556 local auto part manufacturers, which varied between two to four percent over the last five years, dropped to 1.1 percent in the third quarter of 2021.

The Bank of Korea attributed the decline to the chip shortage and the resulting production suspensions.

Katech estimates there are some 4,660 auto part manufacturers with more than 10 employees in Korea, with 260,000 people working in the industry as of last year.

“Automakers posted record-high profits due to hikes in demand [in 2021], while many small- and mid-sized subcontractors are in a predicament,” said Lee Hang-gu, a researcher at Katech.

Automakers are feeling the heat as well.

“Since last year, the executive in charge of semiconductor sourcing has been frequently going on business trips,” said a spokesperson for Hyundai Motor, “because we thought that visiting the semiconductor manufacturers directly might help to solve the situation.”

Some auto manufacturers including Hangzhou-based Geely Auto Group, U.S. General Motors (GM) and Ford announced that they will develop and produce semiconductors on their own.

“Hyundai will stabilize chip supplies through long-term plans of direct procurement of semiconductors and chip swap arrangements with other companies,” said Seo Gang-hyun, executive vice president of finance and accounting at Hyundai Motor. Chip swaps are a strategy to share semiconductor inventory and exchange supplies with other companies.

The chip shortage led to prolonged waiting periods for new cars. Buyers now have to wait for a year to get a new car in some cases.

“I decided to rent a car instead of buying one, because I needed it right now,” said Mr. Shin, 50, who recently started a business. Shin wanted to purchase a Kia Carnival van last November, but decided against it after hearing that he would have to wait nearly a year.

Waiting periods for popular models such as the Kia Sportage compact SUV and Sorento SUV are up to 14 months, according to the company. Buyers need to wait for about a year to get Hyundai Ioniq 5 and Genesis GV60 SUVs as well.

Since the latter half of last year, some companies started to offer shorter waiting period but for cars without options that run on semiconductors.

“If you give up features like the collision-avoidance system and remote parking assist, you can get the car a few months earlier at a cheaper price,” said a spokesperson for Hyundai Motor.

“The situation is the same in North America and Europe, so overseas branches are rolling out cars without some features, prioritizing chips needed for core functions such as driving and safety systems,” explained a GM Korea spokesperson.

Secondhand cars are also gaining popularity.

Online used car platform K Car found that the price of secondhand vehicles is rising, especially for electric vehicles and hybrids.

The price of a used Tesla Model Y was 78 million won in February, a 30 percent increase from last month. A new Model Y is priced at 79.9 million won.

“Some secondhand cars are even more expensive than the new ones due to the waiting period,” said Park Sang-il, head of the pricing management team at K Car.

“Companies are expanding auto chip production capacity but it takes time for factories to start operation,” said Lee Ho-geun, an automotive engineering professor at Daeduk University, “and the transition to electric mobility has been accelerated as well, boosting the demand.”

BY BAEK MIN-JEONG [shin.hanee@joongang.co.kr]