Chip shortage putting the brakes on Singapore car dealers, part makers

Singapore

SOME manufacturers of car parts and car dealers in Singapore are facing trickle-down effects as some of the world's largest car makers pause or cut production amid a global semiconductor shortage.

In recent months, a growing number of major car makers including Ford, Nissan and Volkswagen have paused or cut production amid a shortage of chips, which power a range of functions in cars. The shortage came as demand for consumer electronics surged with more people staying home during the pandemic, diverting supply from car makers which had reduced orders amid cautious expectations of a recovery in demand.

This has in turn affected orders for some Singapore manufacturers of car components. Sunningdale Tech, a maker of plastic parts for system manufacturers in the automotive industry, warned in its full-year financial results in February that "many automotive OEMs are temporarily shutting down plants due to the global shortage of materials".

Armstrong Industrial Corporation, which produces parts that help manage noise, vibration and heat in cars, saw some of its orders postponed as several original equipment manufacturers (OEMs) in China extended their usual week-long plant shutdowns during Chinese New Year by another one to two weeks.

Now, Armstrong, which generates half of its overall revenue from the automotive market, foresees that orders this year, particularly for less popular car models, may also be cut. "OEMs are also prioritising to allocate the chips on their best selling models. So, our orders for some of the weaker models are unfortunately affected," said senior director Tan Chong Kooi.

Jackspeed Corporation, which makes leather upholstery for car parts and supplies automotive accessories, has been informed by its customers of reduced orders for the next quarter to June, said chief executive Yap Kian Peng.

The squeeze in global semiconductor supply has been further worsened by a recent fire at Japanese chipmaker Renesas Electronics' factory and ongoing disruptions arising from severe weather in the US.

Data firm IHS Markit said in a March 31 report that it now expects the production of 1.3 million light vehicles to be affected globally in the first quarter, up from its previous forecast of about 1 million.

Car dealers may also be affected. IHS Markit noted that much of the impact on new vehicle sales remains to be seen at this stage, as inventory levels remain healthy enough to meet today's demand. But "as time goes on, the availability of high volume, popular vehicles may be an issue in larger markets".

Tan Chong Motor, the exclusive distributor of Nissan in Singapore, said incoming shipments are unaffected for now, as a result of the sales and product teams' forecasting and planning. However, if there's an unforeseen surge in sales, Nissan "may have some difficulty sending us the cars in time".

According to IHS Markit, the global chip supply may only begin to stabilise in the fourth quarter of this year, with "recovery efforts starting only in early 2022".

Jackspeed's Mr Yap is unsure of how long the situation will last. He noted that aside from the chip shortage, there are other supply issues affecting car makers, such as tightness in the supply of raw materials for plastics, which also form car parts.

For instance, polypropylene is facing "tighter than normal supply" due to a lack of feedstock, plant outages arising from severe weather in the US and shipping bottlenecks, according to IHS Markit.

Precision metal component manufacturer InnoTek said it will "pay close attention" to how the chip shortage continues to play out in the auto sector, even though the overall impact to the company is currently "not great", despite some orders having been postponed or temporarily reduced in March.

But InnoTek, which counts the auto segment as its main revenue contributor and had said in its results announcement in February that it will intensify focus on this segment in 2021, will "make some adjustments in the automotive business".

Meanwhile, with finished goods typically supplied "just in time" in the automotive industry, Armstrong is encouraging managers to make use of the downtime to re-train staff, so as to be ready for when the situation improves. "We remain confident that we can recover from such shocks and continue to grow in this sector, especially in China," said Mr Tan.

Jackspeed, on the other hand, is studying the feasibility of producing for other industries, diversifying away from the group's current focus on the transport and automotive industry, said Mr Yap.

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