By Christina Amann

MUNICH (Reuters – Automakers must be creative in order to deal with global shortages of semiconductors.

Due to shortages and an increase in consumer demand during the pandemic surge, the automotive industry has been hit hard. Millions of cars have not been produced worldwide because they lack critical parts.

Daimler (OTC) and Volkswagen (DE) had to change their production plans after the issue lasted longer than they expected.

The majority of car makers buy their parts from large suppliers, such as Bosch or Continental. These suppliers then purchase from lower-tier suppliers.

Ondrej Bukacky, McKinsey’s senior partner, stated that in some cases this has caused a lack transparency.

He said that there was a fallacy in thinking you could choose between two suppliers. But, the truth is they had chips manufactured by the same foundry.

That is now changing, according to Daimler Purchasing Manager Markus Schäfer.

He stated that the German manufacturer of Mercedes-Benz cars, has established a direct line to communicate with all chip suppliers including Taiwan wafer producers, at September’s IAA (NYSE:).

Volkswagen CEO Herbert Diess talks about the “strategic partnership” his company formed with Asian manufacturers.

According to Stefan Bratzel, Center for Automotive Management, chip suppliers must be treated differently because of their importance in the industry.

He stated, “You know the problems when you treat chip companies as other suppliers.”

McKinsey’s Burkacky suggested that automakers consider investing in direct production or long-term agreements with terms greater than 18 months.

He said, “Not much has been done yet.”

‘MORE RESILIENT’

Meanwhile, automobile developers do their part in helping manufacturers to manage the shortage.

Annette Danielski (chief financial officer for Volkswagen’s trucking company Traton) stated that Traton was looking to make some room on its motherboards and control systems.

She stated that “if we modify the software, then we can use less semiconductors to achieve the same functionality.” While it can take a while because regulatory authorities are involved, there are some areas that you can quickly change.

Daimler uses new control unit designs. Rather than using one specific chip, these are designed to work with an alternative that can be used in the event of delivery problems, the company’s head of purchasing Schäfer said.

This is why Tesla (NASDAQ: ) is the preferred model.

Within three months, the company had reprogrammed the software so that less-expensive chips could be used. This allowed the U.S. Electric Carmaker to better weather the crisis than other companies.

General Motors (NYSE) stated that it would work with chip companies like Qualcomm (NASDAQ), STM, and Infineon to create microcontrollers that integrate multiple functions previously managed by separate chips.

A spokesperson for the company stated that they are working to build an environment that’s more resilient, expandable, and more available.

PRORITISING

BMW refers to this as “hole shoring” by some carmakers.

It is possible to complete the entire car if there is a single missing component.

This strategy is also being used by other automakers. Some vehicles may not have certain features controlled by chips.

High-quality vehicles like electric cars can be conserved with semiconductors, but customers will have to wait for lower-priced combustion engines.

This strategy is gradually reaching its limit. Volkswagen had to stop production at Zwickau, Germany’s electric car plant recently.

These strategies may not work as well as we think.

McKinsey’s Burkacky stated that the bill would be introduced in 2022 or later, so you could see who emerged from this crisis with their strengths and weaknesses.”