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        home > news > Automakers > Biden, Auto Execs to Seek Solution to Chip Shortage in Meeting Monday

        Biden, Auto Execs to Seek Solution to Chip Shortage in Meeting Monday

        Automakers looking for short-term and long-term help.

        Paul A. Eisenstein
        Paul A. Eisenstein , Publisher & Editor-in-Chief
        April 12, 2021
        GM CEO Mary Barra traveled to Washington, D.C. today to talk with Biden administration to talk about the semiconductor shortage.

        General Motors CEO Mary Barra and her Ford counterpart Jim Farley will join in on a virtual summit with President Joe Biden today, the event meant to address the shortage of semiconductors that has forced a sharp cutback in U.S. vehicle production in recent months.

        The two automakers have warned they could take as a much as $4.5 billion hit to their combined earnings this year as a result of the shortages, with consulting firm AlixPartners forecasting the hit to global auto revenues will reach more than $60 billion.

        There appear to be few short-term solutions to the problem, but the Biden administration has launched a task force to explore ways to expand production, with the president’s proposed infrastructure plan calling for billions in investments to expand chip production capacity in the U.S.

        The auto industry would also like to see tax credits to “help (semiconductor) companies offset the cost of creating new lines within existing facilities or reallocating current production to meet evolving needs,” said John Bozzella, CEO of the Alliance for Automotive Innovation, a trade group representing both Detroit’s Big Three and most of the foreign-owned automakers operating in the U.S.

        Semiconductor shortage origins

        Ford CEO Jim Farley
        Ford CEO Jim Farley is also involved in the meeting today with members of the Biden team.

        The chip shortage traces back to the pandemic lockdowns announced a year ago. Auto sales plunged in March and April 2020 and were forecast to be down sharply for the rest of the year. Automakers responded by slashing semiconductor orders. Chipmakers found a ready alternative in the form of consumer electronics producers who experienced soaring demand for web cameras, smartphones, game consoles and other tech gear as millions of Americans were forced to work and play from home.

        But the anticipated plunge in car sales never materialized, demand rebounding by summer and reaching pre-pandemic levels by late 2020. By then, however, the semiconductor industry had largely run out of capacity. Compounding the situation, automakers tend to buy cheaper, lower–cost chips, making them a lower priority for vendors.

        That’s all the more of a problem because demand for the auto industry has rapidly escalated in recent years as manufacturers add new high-tech features to their vehicles. The typical new vehicle can have as many as 100 microprocessors on board for everything from powertrain controls to the latest infotainment and advanced driver assistance systems.

        “There has never been an automotive semiconductor shortage quite like this, and it’s not close to being over,” Marc Barnhill, the chief trading officer for Smith’s, said in a statement to CNBC.

        Problem expanding to more automakers

        Since the beginning of the year, more and more manufacturers have been impacted by the crisis. Virtually every automaker worldwide has had to trim production and, in many cases, temporarily idle some of their plants.

        President Joe Biden
        President Joe Biden will actually be involved in the meetings about the semiconductor shortages.

        GM today began a two-week shutdown at its Spring Hill, Tennessee plant while the closure of another facility in Lansing, Michigan will be extended through April 26.

        Ford plants in Chicago, Flat Rock, Michigan and Kansas City are closed this week, impacting production of some of the automaker’s most profitable products, including the F-150 pickup.

        GM has warned that the shortages could reduce operating profits by anywhere from $1.5 billion to $2 billion this year, Ford sees its earnings tumble by $1 billion to $2.5 billion.

        Global auto revenues are likely to fall more than $60 billion this year, according to AlixPartners.

        Making up lost production

        During the first quarter alone, manufacturers around the world will lose about 1.4 million vehicles in production. They hope to make some of that up by increasing output later in the year. Ford, for example, advised union employees it will cancel their normal summer shutdown this year.

        The crisis comes at a time when the industry is struggling to make up production lost last year due to the pandemic closures. According to J.D. Power, there are about a million fewer vehicles on U.S. dealer lots than would be normal this time of year. Widely popular models, especially pickups like the F-150 and GM’s Chevrolet Silverado, have been among the hardest hit, despite manufacturers often shifting chip supplies to keep those lines running.

        On the plus side, at least for the industry, manufacturers have been able to cut back on incentives, driving up average transaction prices. Dealers also have been able to pull back on discounting. For consumers, however, the shortages have made it harder to find the vehicles they want, even as they’re paying more for what they do buy.

        The question is whether the chip shortages can be addressed anytime soon. Those questions may get some answers during today’s meeting.

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