Detroit automakers must follow Steve Jobs’ manual | Opinion

There are not enough silicon chips for everyone. General Motors, Ford, and other companies lack the supplies to make enough cars. Covid-19 is only partially to blame. To get back on track, automakers must look to Apple, and specifically its innovative iPhone, to learn how to manage their supply chains.

Chip shortages have hurt profits for automakers, and GM, Ford, BMW and Daimler have been forced to reduce their production capacity despite strong demand. They have announced a series of initiatives in response, going as far as designing their own chips. The root of the problem is that automakers have outsourced decision-making, keeping inventories too low and contracts too short-term.

Large automakers work with so-called first-tier suppliers, who specify parts at a high level. Suppliers translate those requirements into orders for specific parts. Automakers don’t necessarily know what chips are capable of, and semiconductor manufacturers don’t really know what the needs of each car company are. Worse, orders are typically short-term, with commitments often only spanning weeks rather than the year-long deals common in other industries.

Apple architect Steve Jobs would roll over in his grave. The iPhone was a triumph of customization and integration of cutting-edge hardware and software. Apple sources carefully designed parts and manufacturability directly from specific partners. Relying on third parties to source components based on large-scale specifications would never have worked.

Despite a global shortage, the company increased phone deliveries by more than 20% year-on-year in the third quarter, according to research firm IDC. General Motors, meanwhile, has seen its vehicle deliveries in the last quarter have fallen by around 43%.

Automakers’ suppliers cannot respond as effectively as Apple’s. The status quo is even less sustainable as cars become more technologically sophisticated, with GM and others anticipating billions in revenue from technology-enabled services. However, things could be changing: Ford, for example, announced in November a partnership with chip firm GlobalFoundries. If car manufacturers start signing long-term contracts directly with semiconductor producers, these suppliers will be able to afford to invest in new foundries and designs.

It’s a start: Big manufacturers are scrambling to catch up with the leader of electric vehicles, Tesla, whose boss, Elon Musk, is obsessed with control, like Jobs. They need to follow the Cupertino manual more and less the Detroit one.

The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, by Carlos Gómez Abajo, is the responsibility of Five days

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