The global shortage of microchips shows no sign of abating and, if anything, is impacting more and more motor vehicle manufacturers.
The crisis, some analysts warn, could continue through the end of the year, potentially leaving many buyers struggling to find the vehicles they want. Automakers, in turn, face billions of dollars in lost earnings. But there could be a small silver lining, manufacturers and dealers facing less pressure to load up the market with profit-gobbling incentives.
U.S. President Joe Biden recently weighed in with a plan that could deliver billions of dollars in assistance to chipmakers aiming to ramp up capacity. Now, Japanese and South Korean government leaders are stepping into the crisis, as well.
Semiconductor shortages leave few brands untouched
Few, if any, of the major automakers appear able to sidestep the crisis. Among the Detroit brands, General Motors and Ford have had to slow or halt production at a number of plants this month, including facilities producing high-profit models like the F-150 pickup.
Nissan has cut back or canceled production of models including the Murano and Rogue SUVs, Leaf crossover and Maxima sedan. Toyota has trimmed production of popular models including the Camry sedan and RAV4 SUV, in the U.S. and Mexico. And Volvo has been impacted at the South Carolina plant producing its S60 sedan.
The situation isn’t limited to passenger vehicles and light trucks. Volvo AB — which is independent from Chinese-owned Volvo Cars — warned this week it may have to put production of its heavy-duty trucks and construction equipment on hold for a month due to the shortages.
No overnight solutions
“It will take some time for us to get back on track,” Volvo spokesman Claes Eliasson said in a statement. “This is a typical issue that happens when the world restarts; you get this kind of disturbance for certain components, as well as strain on the freight industry.”
Restarting motor vehicle manufacturing after last year’s COVID-triggered shutdowns clearly contributed to the chip crisis, industry analysts note. When production halted last spring chip manufacturers went looking for new markets to absorb their own products. They found strong demand from consumer electronic companies experiencing booming demand for everything from TVs to smartphones to webcams during COVID lockdowns.
Now, due to the COVID lockdowns, they don’t have the capacity to quickly ramp up production for the auto industry as car sales recover. President Joe Biden last month called for $37 billion in new funding “to work with industrial leaders to identify solutions to the semiconductor shortfall.” He also signed an executive order calling for a 100-day review of chip supply chains. It’s unclear how soon any of these measures might boost production and help refill the order pipeline.
Government leaders step in
The U.S. isn’t the only country where government leaders are looking for ways to address the chip crisis. Taiwanese leaders have promised to work with local suppliers to boost output. The island is home to some of the world’s largest microcircuit manufacturers. Both U.S. and German government officials are pressing Taiwan to lean on its chipmakers to boost automotive supplies.
The impact of the COVID pandemic was compounded by accidents at several Japanese chip plants. A factory owned by Renasas Electronics Corp. was severely damaged by fire last week. The company produces about 30% of the microchips used by vehicle manufacturers worldwide, though it isn’t clear how much of the Renesas production was lost to the disaster.
It could take months to bring the plant in Japan back on line, the Reuters news service today reported, adding that “Japanese bureaucrats have contacted companies at home and overseas to request they provide parts and machinery to Renesas,” in an effort to shorten the repair process.
New plants are in the works
A number of companies have announced large-scale investments aimed at boosting chip production. Intel on Tuesday said it would spend $20 billion to open two new plants in Arizona.
The auto industry now expects to take a severe financial hit due to chip shortages. Ford warned that the crisis could reduce earnings by anywhere from $1 billion to $2.5 billion this year, General Motors putting its number at $2 billion. While Honda did not put out a dollar figure it last month warned that it expects to sell about 100,000 fewer vehicles worldwide this year due solely to the chip shortages.
Making matters worse, new shortages are developing, these involving petroleum-based materials, notably including the foams used in automotive seating.
If there’s anything positive to come out of the chip crisis for the industry, “a good thing (is that) automakers can keep incentives low,” Cox Automotive analyst Michelle Krebs told TheDetroitBureau.com. “Plus, tight inventories of high demand vehicles mean big prices for automakers and dealers. “
Consumers will pay the price
On the flip side, that means the crisis is driving up costs for consumers on top of the big price hikes shoppers have seen during the last several years. Buyers also may find it harder to locate the exact model they want, especially when it comes to high-demand pickups and SUVs. It may be less of a problem for those seeking sedans and other vehicles in lower demand, said Krebs. But GM, Ford and Hyundai, among others, are now diverting chips from less popular products to prop up production of their hotter offerings.
While strong demand for consumer electronics during the pandemic helped trigger the chip shortage, companies producing digital goods like smartphones, TVs and web cams aren’t immune from shortages, Reuters reports. The news service said it has been advised that some suppliers, such as Qualcomm, are struggling to meet demand for semiconductors needed in devices such as Samsung smartphones.
How long the crisis will continue is uncertain. Some analysts now believe it could take until late 2021 until the semiconductor industry can ramp up production to meet global demand.