March 2021 The Roemer Report

Current Publication

Chip Fab Supply Disruption Threatens To Disrupt Trucking And Supply Chain Thinking

Like the hapless Gaijin in the famous Japanese print The Great Wave off Kanagawa, the news came out that auto and truck makers were about to be slammed by a global microchip shortage.

According to a February 21 Automotive News staff editorial, the shortage threatens to pull as many as 1.3 million vehicles out of production in 2020. The industry bible’s editors calculated that at an average of $40,000 per vehicle, the impact could represent a potential $52 billion economic hit to sales just when the industry is trying to bounce back from pandemic.

And it’s not just cars. That same day the Wall Street Journal, posted its story on “Chip Shortage Strains Heavy-Duty Truck Makers.” They noted surging orders for big rigs has backlogs growing in factories because key components and systems reliant on chips can’t procure or sustain supply.

Not Entirely COVID-19’S Fault

So why aren't there enough microchips available to service the automotive industry? Automotive News posits COVID-19 certainly played a role in limiting supplies, but they note, only for a time. Automotive News explained that what’s really exacerbating the problem is auto and truck makers are increasingly competing for microchips with a “vast” array of industries, most specifically consumer electronics makers and in some cases their own suppliers.

More Chips In Every Cab!

Just sitting in the cab of a brand-new Volvo Class-8 will confirm to anyone just how much electronics dominate contemporary commercial vehicles. Most in the trucking industry won’t need Automotive News to tell them microchip use inside the cab and inside the box, black or otherwise has “exploded” in recent years.

Every Man, Women, Robot And Device For Him, Her Or Itself

So, what exactly is eating the industry Gilbert Grape? Automotive News points out that individual companies all up and down the supply chain “are fending for themselves to acquire the humble chips they need.” According to the editors, it’s affecting all three tiers of the industry and prompting a mixed bag of acquisition and value chain shuffling tactics to keep manufacturing lines from stopping.

Commercial Fleet Operations Lost Without Electronics

So many systems are reliant on chips and consequently so are operations. The increased presence of electronic control units (ECUs) has driven the need for more robust diagnostics functionality, explained Jason Hedman, product manager at Noregon, a diagnostic solutions provider to Bulk Transporter. Offering his perspective on the future of heavy-duty diagnostics, Hedman offered this metric of evolving landscape. “In the mid-1990s, the typical truck contained fewer than two ECUs,” says “That number grew to roughly 11 by 2014.”

An Industry Advancing Toward Autonomy

Hedman points out the trend toward remote diagnostics “segues perfectly to the trend toward autonomous vehicles.” He explains that to make autonomy a safe and viable option, trucks should feature redundant systems to back things up when another system fails. Hedman also advocates remote diagnostics also ought to offer predictive analytics to allow fleets to pre-empt problems before they start.

Chip Munch Causes Chip Crunch And Anxiety

Apparently, the automotive industry was caught very short-sighted. In his MarketWatch Blog Daniel Newman’s subhead said it all: Car companies and smartphone makers don’t have enough semiconductors to meet demand for their products. The crunch should let up by mid-year, but there’s a greater concern that the U.S. doesn’t control enough manufacturing.

Newman says with the vast majority of chip production for U.S. and global technology original equipment manufacturers (OEMs) now being accomplished in Asia “we are currently experiencing the potential downside to a fabless ecosystem with minimal onshore production capabilities.”

Downside to a fabless ecosystem is market-analyst speak for “Um maybe the automotive industry should have invested in or built some chip fab plants of their own instead of farming it all out to Asia.” Newman explains that while our strained relationship with China certainly plays a role, “there was no more significant catalyst than Covid-19 coupled with wildly inaccurate forecasts tied to the unknowns of a sustained global pandemic.”

MarketWatch posits that Covid-19 didn’t just drive crazy levels of demand for entertainment and information technologies it fundamentally changed human’s buying behavior. This shift moved dollars from live events to home entertainment, he explained, noting that people in droves were buying TVs, streaming services and gaming consoles. “Like PCs, all of these are dependent on volumes of chips — and this demand wasn’t expected, and therefore wasn’t forecasted.”

Time To Adjust The Supply Chain Thinking

Automotive News closed wanting to know if the industry should be asking itself this question: “Shouldn't automakers begin supporting their entire supply chains in acquiring this commodity that has become critical enough to stop a speeding train? Automakers forecast how many vehicles they will build. They know — or should know — how many microchips that will require. Let's have entire supply chains buy what they need in cooperation.”

That is a radical departure from traditional purchasing department thinking. But Automotive News finds the thought of 1.3 million missed vehicles just might be radical enough to re-think it. Let’s hope so.

Microchips and the data they collect, transmit and crunch fundamentally support nearly every aspect of commercial trucking. Perhaps it delays a replacement cycle -which might drive operating costs up or pushing systems past their due date. The industry needs chips, especially for their ability to demonstrate vehicle and driving safety, something we all know is required to help truckers find affordable truck insurance and keep it.