The scarcity of parts is hurting the automotive industry, which is still struggling to recover from last year’s production shutdown pandemic – and the situation is getting worse as the problem spreads from microchips to seat foam and plastics.
The biggest problem is the scarcity of chips used to control everything from power trains to digital security systems. This has resulted in closings or cuts in production by many of the industry’s biggest manufacturers in recent weeks, including General Motors, Honda, Nissan, Volkswagen, Ford, Toyota and Stellantis.
“We continue to manage a number of supply chain problems related to the impact of Covid-19, congestion at multiple ports, microchip shortages and a harsh winter,” Honda said in a statement, adding, “Somehow, all of our car factories in the U.S. and Canada will be affected, with most factories temporarily suspending production during the week of March 22. “
The shortage meant Ford cut a shift at its Kentucky truck plant, which produces its Super Duty pickups, Ford Expedition and Lincoln Navigator, until next week. Another Kentucky assembly plant in Louisville is expected to reopen on Tuesday after closing last week due to chip shortages. Nissan cut or canceled the production of several models, including the Murano and Rogue SUVs, the Leaf crossover and the Maxima sedan. Toyota has reduced production of popular models in the United States and Mexico, including the Camry sedan and the RAV4 SUV.
Volvo, whose South Carolina plant that produces the S60 sedan was affected, said in a statement on Monday that the chip shortage “will have a substantial impact on Volvo Group’s production in the second quarter”. Volvo said it would implement “downtime” of two to four weeks and that “the disturbances are expected to have a negative impact on profits and cash flow”.
General Motors has faced intermittent production problems in recent weeks, when its own microchip supplies have run out. He tried to work around the problem at a factory by redesigning an engine control module for his Chevrolet Silverado and GMC Sierra pickups. Although the vehicles still meet federal emission standards, the alternative solution reduces fuel savings by about 1.6 km per liter, GM confirmed.
Today’s cars can use 100 or more microprocessors, making the industry particularly vulnerable to supply disruptions. The crisis was triggered by pandemic production cuts last year, when chip makers had strong demand from consumer electronics companies, experiencing a growing demand for electronics from TVs to smartphones and webcams during the Covid-19 blockades.
Chip makers say they do not have the capacity to rapidly increase production for the automotive industry as auto sales rebound. President Joe Biden last month asked for $ 37 billion in new funds “to work with industry leaders to identify solutions to the semiconductor deficit”. He also signed an executive order calling for a 100-day review of supply chains. It is not clear when any of the measures could increase production and help replenish the order pipeline.
Adding to the crisis, some manufacturers are running out of essential oil-based products after the recent freezing climate in Texas led to the closure of major petrochemical plants. Industry analysts expect a shortage of plastics and petroleum-based automotive products, especially seat foam.
It is a particularly difficult time for the auto industry. North American manufacturing was halted for about two months last spring because of the pandemic. Since the reopening, automakers have struggled to refuel showrooms. Inventory in U.S. dealership lots has dropped by at least a million vehicles compared to what would be normal at this time of year, according to research firm JD Power.
Consumers are feeling the pinch in several ways, analysts said. Buyers may find it more difficult to find the exact models they want, especially when it comes to colors and accessories. While supplies are in short supply, automakers have reduced incentives, while salespeople have less need to close deals.
But paralyzing production and reducing sales will have a major impact on collective results. Ford warned that the chip shortage alone could reduce earnings by $ 1 billion to $ 2.5 billion this year. General Motors estimates its number at $ 2 billion. Although Honda did not disclose a dollar figure, it warned last month that it expects to sell around 100,000 fewer vehicles worldwide this year just because of the lack of chips.