Chip Shortage Continues to Wreak Havoc on New Car Production

GM and other automakers have focused manufacturing efforts on high-margin vehicles to keep profits coming.

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Chip Shortage Continues to Wreak Havoc on New Car Production © Chip Shortage Continues to Wreak Havoc on New Car Production

The pandemic continues to hamper social and industrial operations alike. With the world stuck indoors and technology being more important than ever to keep people connected, electronics sales have been on the rise. Couple the increased demand with slowed production due to COVID-19 and you've got the perfect storm to create an industry-wide shortage. That's exactly what happened with one of the most basic building blocks for electronics: semiconductors.

This has already been a growing problem for the auto industry, as vehicle production slowed months ago due to chip shortages. Some automakers have already begun to cut manufacturing output or completely pause some production lines in order to ensure higher profit vehicles have priority. And now according to new information from General Motors and Stellantis, this problem doesn't seem like it's going away anytime soon.

Automakers have been competing with global electronics manufacturers in a battle for these semiconductors. Demand for gadgets has been bolstered by workers telecommuting, school-age children requiring technology for distance learning, and people simply bored at home looking for a hobby during the pandemic. Naturally, all of this demand has led to a shortfall in supply, and vehicle production is taking the brunt of it.

Automakers like Hyundai and Toyota have limited the production delays by stockpiling on components, but even Toyota slowed the production of its Tundra pickup at its San Antonio, Texas plant to preserve supply. Still, this means fewer vehicles on the road and lower profits for automakers at the end of the day.

General Motors believes that this problem could account for a global unit shortage of 216,000 vehicles, as reported by Reuters, which would equate to as much as $2 billion in lost profits. Similarly, Ford indicated in February that the lack of chips was estimated to cut into profits as deep as $2.5 billion by forcing manuacturing reductions by up to 20 percent. In its quarterly financial report, Stellantis did not comment on the losses it expected (if any) from the shortage, calling it a "big unknown."

In all, it's never been a secret. Volkswagen warned that it was looming in December 2020, and as demand for new vehicles continued to stabilize, it hit the industry like a freight train. To make things worse, several key electronics facilities in Texas, including Samsung, NXP, and Infineon, were required to shut down during the state's massive winter storm in February, temporarily exacerbating the problem.

In fact, the White House found itself at the center of the shortage, leading to President Joe Biden signing an executive order last week in order to help identify the semiconductor shortfall among other critical supply chains.

It's not clear when the problem will begin to remedy itself, and industry players are even torn on the potential timeline. For example, GM Chief Financial Officer Paul Jacobson believes that supply should stabilize by the second half of the year and not further affect the company's finances, while Stellantis CEO Carlos Tavares was "not so sure" if the issue could be remedied this year at all.

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