The Chips Are (Still) Down, and the Auto Industry is Feeling It

Cars in a row at car plant

Worldwide supply-chain problems linked to the coronavirus pandemic continue to roil the automobile industry.

Michigan automakers and their supplier companies have for months been dealing with a shortage of computer microchips, which are used by the hundreds in the electronic systems of new vehicles, and industry-watchers see no signs of a near-term improvement in the situation.

Both General Motors Corp. and Ford Motor Co. on Sept. 1 announced production cuts, with GM planning to temporarily close nearly all of its North American plants beginning Sept. 6 and Ford temporarily cutting shifts at the Dearborn Truck Plant, which makes the popular F-150 pickup, and the Kentucky Truck Plant in Louisville, Kentucky, which makes the Ford Expedition and the Lincoln Navigator.

That’s on top of assembly-line and plant shutdowns made earlier this year, some of which are continuing.

“This is a very complicated issue, it’s very fluid, and it’s going to require us to manage it on an ongoing basis,” said GM spokesman Daniel Flores. The chip shortage is by far the biggest supply-chain problem facing GM, he said.

The chip shortage has caused ripple effects throughout the auto industry. Chip-making companies, many of them in Asia, can’t meet demand because of pandemic-related restrictions, plant shutdowns and labor shortages.

Companies that provide GM with the parts and components that require chips — GM buys relatively few chips itself — can’t get enough of them, and GM therefore is steering those suppliers toward using the chips they can get for the parts and components for its best-selling, highest-margin models, namely full-sized pickups and sport-utility vehicles, Flores said.

“We’re looking for every way possible to prioritize our popular products,” Flores said.

The rationing of chips isn’t a reflection on the work forces at facilities that aren’t getting enough of them nor on the models those facilities produce, Flores said. “We’ve had to make some very dramatic decisions from the company’s perspective to keep the business running,” he said.

For example, GM’s plant in Kansas City, Kansas, which in normal times produces the Cadillac XT4 and the Chevrolet Malibu, has been closed since mid-February; it’s the longest pandemic-related shutdown of any of the company’s plants, Flores said.

The ripple effects extend to GM dealers, which are running low on inventories; to buyers, who are facing longer wait times for vehicles they’ve ordered; and to the plants that turn out bumpers, engines and stamped-metal components like doors and fenders.

“The chip shortage is creating huge variability in the auto industry,” said Steven Wybo, automotive practice leader at Riveron. Wybo last spoke with Corp! in late June, and said on Aug. 31 that the situation had worsened since then.

Wybo’s clients include several auto suppliers, and he is in regular contact with decision-makers at the OEMs. “Everybody’s trying to do the best they can to schedule their facilities and meet customer demand,” he said.

While supply-chain problems that stemmed from events earlier in the year, such as severe winter storms in Texas and a container ship getting trapped in the Suez Canal, have been resolved, the pandemic appears to have gotten worse recently, impacting the chip supply, Wybo said.

The sporadic nature of the supply, Wybo said, has meant that many auto-related manufacturers are operating in an irregular, start-stop, start-stop fashion, as the demand from assembly plants for the components those suppliers make has also been sporadic. “It’s very expensive to manage a facility like that,” he said.

Wybo said his recent purchase of a Cadillac Escalade, a luxury SUV, was impacted by the chip shortage. When ordering it, he said, he had to forgo the retractable running boards that often come with the Escalade. The retractable running boards would’ve required more computer chips.

“It’s an unnecessary option,” but GM lost the profit margin on that option, he said.

Spokespeople at Ford did not respond to several requests for comment for this story nor to an emailed list of questions, and a spokesperson at Stellantis, a multinational conglomerate that includes the former Fiat Chrysler Automobiles, said the company was not answering questions about supply-chain problems.

Wybo said based on his industry knowledge and a “gut feeling,” it’ll probably be six months before the chip situation stabilizes.

“I hope I’m wrong. I hope it’s sooner,” he said. “It just feels like there’s not an end in sight.”

“The focus is to return to normal production schedules as quickly as we can,” said Flores, the GM spokesman, “but at this point in time there’s no way for me to say exactly when that’s going to be.”