General Motors temporarily will halt production of its highly profitable full-size pickups at two North American plants next week as a result of the industry’s ongoing shortage of semiconductors.
It’s the first time GM’s big pickups have been hit by the crisis and it comes less than two weeks after Stellantis said it would briefly halt production of its own Ram pickups, as well as the next-generation Jeep Grand Cherokee SUV.
The auto industry continues to struggle to keep assembly plants running due to a shortage of critical semiconductors, some analysts estimating the impact worldwide will top $100 billion in lost sales this year. But the Biden administration is expressing hope the worst of the problem is now in the rearview mirror, with chip suppliers promising to increase production of the components automakers need.
Inventories shrinking by the day
GM’s plants in Fort Wayne, Indiana and Silao, Mexico will be down all next week. The facilities produce the Chevrolet Silverado 1500 and GMC Sierra pickups. At the same time, an assembly plant in Flint, Michigan producing the heavy-duty versions of those trucks will be cut to a single shift.
“These most recent scheduling adjustments are being driven by temporary parts shortages caused by semiconductor supply constraints from international markets experiencing COVID-19-related restrictions,” GM spokesman David Barnas said in a statement. “We expect it to be a near-term issue.”
The chip shortage hit just as the industry began recovering from the COVID-19 lockdowns that shut down North American manufacturing for about two months during spring 2020.
“We came into the year with limited inventory,” Duncan Aldred, head of the GMC brand, told reporters during a webinar on Monday. “And with the chip-related shortages,” complicated by strong consumer demand, “we’ve remained at that low level of inventory.”
Automakers run out of options
Normally, automakers try to maintain about 60 to 70 days’ worth of vehicles on dealer lots. Many are now operating at half that level and some products, such as the GMC Sierra, are sliding close to single-digit numbers.
Initially, manufacturers tried to minimize the impact of the shortage. They shifted semiconductor supplies to more profitable models, such as the Sierra and Ram 1500, willingly accepting cuts in production of slow-selling and low-profit models, such as GM’s Chevrolet Malibu sedan. They also cut back on tech-oriented content, in some cases, eliminating some advanced driver assistance and infotainment systems. On some versions of the Silverado, GM eliminated a fuel control system that helped buyers gain an extra mile per gallon.
According to a report by consultancy AlixPartners, the global auto industry will lose an estimated $110 billion in sales this year due to chip shortages that have hit virtually all manufacturers, large and small. And that is expected to translate into a sharp downturn in the second-quarter earnings manufacturers will begin releasing in the coming weeks.
Optimism despite the storm
Nonetheless, some experts hope the worst may be in the rearview mirror. A Goldman Sachs report published in June forecast that shortages should begin to mitigate, allowing automotive production to “jump in July.”
‘You’re starting to see some improvements,” U.S. Commerce Secretary Gina Raimondo told reporters this week, according to the Bloomberg News.
Indeed, GM officials had indicated earlier this month that they were able to line up new chip supplies allowing them to boost production on some assembly lines. But experts caution that the situation changes on a daily basis.
During a Wednesday webinar with reporters, Stellantis CEO Carlos Tavares forecast that the problem “will drag into 2022.”
Automakers aren’t alone
And it’s not just auto companies worried about the situation dragging on. Swedish truck company AB Volvo on Tuesday blamed chip shortages for preventing it from meeting strong demand for its vehicles in recent months. As a result, the company slightly missed the second-quarter consensus forecast of analysts, according to Refinitiv — though, at $1.12 billion, it still nearly tripled earnings from the year before.
Not everyone is suffering. With inventories down, retailers have been able to cut back on deals. According to a study released this week by Kelley Blue Book, U.S. new car buyers are now paying closer to list price than they have in years. The typical new vehicle buyer laid out an estimated $42,258 in June, according to KBB. That was up $928 from May, and $2,527 — or 6.4% — from June 2020.
Dealer profits have risen sharply this year. On Monday, AutoNation reported a 38% jump in second-quarter earnings, to $384.8 million. But analysts warn that continuing shortages could make this a temporary phenomenon.
The White House steps in
The Biden administration has been pressuring Asian trade partners like Taiwan — one of the world’s largest producers of semiconductors — to boost production and steer more supplies to the auto industry. Chip suppliers redirected much of their output to the consumer electronics business when automakers cut orders last year during the worst of the pandemic.
Early this month, a number of chip plants in Malaysia cut production due to new COVID outbreaks. Responding to calls from Washington, the country declared semiconductors a “critical” industry, allowing plants to reopen.
It has gained support from several other countries with large chip production capacity, including Vietnam.
But, as the latest cutbacks by GM and Stellantis demonstrate, the crisis is far from over and the cost to the industry is mounting by the billions.
Let’s Go with Electric cars and trucks and forget about China…..>..!
Screw China