Volkswagen Says Chip Crisis Won’t Ease Until Second Half of 2022

(Bloomberg) -- The head of Volkswagen AG’s Americas business doesn’t see U.S. auto production returning to normal levels until the second half of 2022 following Covid-19 outbreaks in Malaysia that brought a fresh round of supply chain headaches.

“Normal -- when we can make every single car we want exactly when we want to make it -- I don’t think will be until second half of next year,” Scott Keogh, chief executive officer of Volkswagen Group’s North American unit, said in an interview at the company’s assembly plant in Chattanooga, Tennessee. 

A global semiconductor shortfall has cut auto production worldwide and left showrooms with fewer models to sell, even as the pandemic triggered a surge in demand.

Volkswagen was forced to idle production of the Taos and Tiguan sport utility vehicles at its Puebla, Mexico, plant this summer, and it’s been harvesting chips from the slower-selling Passat sedan to feed production of the more-lucrative Atlas SUV, which is made in Chattanooga. It’s also preparing the Tennessee plant to produce the ID.4, its debut electric SUV, next June.

The Chattanooga facility has been running at full capacity -- when it has chips -- and is planning to add more workers to further boost production, according to Johan De Nysschen, the chief operating officer of Volkswagen’s Americas business.

The pandemic exposed a “structural gap” between chip production and demand, and the disruption from the virus has only exacerbated the imbalance, Keogh said. But it hasn’t been all bad for automakers.

Tight inventory has led to soaring prices and minimal incentive spending, padding the companies’ bottom lines. That helped Volkswagen’s U.S. business turn a profit in 2020 for the first time in eight years, Keogh said, following a revamp of its lineup from sedans to SUVs.

When semiconductor shortages eventually ease, Volkswagen plans to keep fewer cars on dealer lots, because it has proved to be more profitable for manufacturers and dealers, Keogh said.

“Going back to the days of having 100 to 120 days’ supply is not going to happen,” he said. “Now, people have 30 to 40 days’ supply and it’s working quite fine. Somewhere in that 40 to 50-day camp would be a beautiful thing.”

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