The auto industry might get federal relief from the shortage of semiconductor chips that has crippled vehicle production over the past several weeks.
President Joe Biden signed an executive order Wednesday to review the U.S. supply chains of products in key industries, including semiconductor chips that are used in various electrical components for cars, personal electronics, military equipment and other items.
It is a proactive step to mitigate further production disruptions to the auto industry, which has been hit hard by the chips shortage.
Demand for the chips is up in part because of the COVID-19 pandemic and an increased use of laptop computers, 5G phones, gaming systems and other IT equipment that use the chips. Cars use them in a variety of parts and infotainment systems.
The major manufacturers of the semiconductor chips used in cars are overseas, namely Taiwan-based Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC). The strain on making and delivering the chips comes down to supply versus demand.
Data company IHS Markit has tracked the chip problem since April 2020 and it estimates the deficit will result in 672,000 fewer light-duty vehicles built globally in this first quarter. As part of that total estimate, North America will see about 100,000 fewer vehicles made.
More:Chip shortage cripples car production into the second half of 2021
While many automakers welcome Biden’s help, some industry experts say this will do little to resolve the squeeze on production and slim new-vehicle inventory levels in the short term.
“It is a reasonable goal to want to secure and protect the supply chain for U.S. manufacturing and parts, given the issues the auto industry is currently facing, but this will do little to address the near-term shortage of semiconductors,” said Jeff Schuster, LMC Automotive’s president of Americas Operations and Global Vehicle Forecasts. “It will be challenging to make changes to a global supply chain in the medium term without significant investment and incentives.”
100-day review
Biden met with a bipartisan group of House and Senate members on U.S. supply chains at 2 p.m. in the Oval Office and signed an executive order after that meeting, according to a White House briefing schedule. The order is also expected to examine supply chain issues with large-capacity batteries, pharmaceuticals and crucial minerals.
Part of Biden’s concern lies in the fact that the nation’s manufacturers have become increasingly reliant on imports of the chips, creating a possible risk to national security and economy. In a fact sheet from the White House, it says, “The United States is the birthplace of this technology, and has always been a leader in semiconductor development. However, over the years we have underinvested in production — hurting our innovative edge — while other countries have learned from our example and increased their investments in the industry.”
The UAW said it has been working with the Biden administration on proactive policies to strengthen domestic supply chains and create U.S. jobs.
“These supply chains, as well as other inputs and components, are the building blocks of our economy and it is crucial for the United States to make these critical products right here in the United States,” said UAW President Rory Gamble.
The White House also noted that as it considers ways to address the climate crisis, it will lead to large demand for new energy technologies like electric vehicle batteries.
“By identifying supply chain risks, we can meet the President’s commitment to accelerate U.S. leadership of clean energy technologies. For example, while the U.S. is a net exporter of electric vehicles, we are not a leader in the supply chain associated with electric battery production,” a White House fact sheet stated. “The U.S. could better leverage our sizeable lithium reserves and manufacturing know-how to expand domestic battery production.”
The Biden administration hopes to address the issue in a 100-day review aimed at finding some near-term solutions to the chips shortage and to potentially boost domestic production. Biden will also work with “international partners to ensure a stable and reliable supply chain,” according to an AP report citing unidentified administration officials.
The order is expected to include sectoral reviews to be completed within one year “for defense, public health and biological preparedness, information communications technology, energy, transportation and food production,” AP reported.
It said administration officials have met with automakers and are in discussions with foreign counterparts on ways to increase chip supplies near term.
At the company level
A 100-day review of the sectors identified will not produce any actionable results in the near term, said Schuster of LMC Automotive.
“I also believe these type of shortages and risks tend to get dealt with at a company by company level,” Schuster said. “You better believe the automakers impacted are making adjustments and looking for hedges in the future to mitigate risks like this from happening in the future.”
Indeed, the Detroit Three have said they are working closely with their suppliers to mitigate any production impacts especially on their big moneymaking vehicles such as full-size pickups and SUVs.
The chips shortage has already caused production disruptions across the industry and at each of the Detroit Three automakers:
- General Motors has shuttered three plants in North America from Feb. 8 to at least mid-March, affecting some compact SUV production.
- Ford Motor Co. has seen production disruptions in the past several weeks to its popular, highly profitable F-150 pickup, as well as some SUVs and cars.
- Stellantis, which used to be called Fiat-Chrysler Automobiles, idled plants in Mexico and Canada, building the Jeep Compass and Chrysler 300, Dodge Charger and Dodge Challenger, for much of January. It has been running normal production in February as it closely monitors the supply chain.
Charlie Chesbrough, senior economist at Cox Automotive, agreed that the executive order likely will not offset production challenges for the auto industry this year.
“Supply chains take significant planning and are generally determined and developed many years ahead of time,” Chesbrough said. “Any outcome of Biden’s executive order would likely have little impact on the auto industry in the near term. The tighter inventory issues in the market today, and the plant slowdowns caused by a shortage of computer chips, are expected to be with us through most of 2021, executive order or not.”
But a push for domestic sourcing of computer chips and EV batteries supports an important Made in America message, Chesbrough said. Most auto companies are likely already considering new domestic sourcing opportunities, as the new USMCA, formerly NAFTA, requires higher North American parts content in the vehicle supply chain.
But neither an executive order or the automakers’ efforts will provide fast enough relief for car buyers hoping to get a good deal on a new vehicle this year, said Ivan Drury, Edmunds’ senior manager of insights. He noted that new vehicle inventory levels were already rather tight at the start of the year after the industry had an eight-week shutdown last spring because of the pandemic.
“The current chip shortage is only further squeezing the supply of new cars across the country, and as a result we’re seeing the beginning signs of what happened to the market at the end of last summer: new vehicle discounts are drying up, as used vehicle prices are starting to climb,” Drury said.
The good news is that stimulus checks and tax returns are on the way so if car dealers can stock up on used inventory now, they might attract car shoppers, “who might have otherwise been dissuaded by rising prices or lack of options in the new market,” Drury said.
Carmakers welcome Biden’s help
GM spokeswoman Jeannine Ginivan said the automaker had “heard this is coming” when asked for reaction to Biden’s expected executive order, but added, “While we welcome support, I don’t have any details of the order to comment on at the moment.”
In a statement from Ford regarding the administration’s executive order to address the auto chip shortage, it said, “As America’s No. 1 auto producer, we greatly appreciate President Biden’s swift actions to remedy the near-term semiconductor shortage and review longer-term actions to develop a more resilient and secure supply chain. It is incredibly important for our labor force, our customers and our business that we have a commitment to end this shortage as soon as possible. We stand ready to work with the Biden Administration on these efforts.”
The auto industry supports 10.3 million jobs nationally which fuels an economic recovery, said John Bozzella, CEO of the Alliance for Automotive Innovation, a trade group that represents carmakers and suppliers. Stellantis referred the Free Press to the Alliance for Automotive Innovation for its reaction.
“We welcome the Biden Administration’s continued support for supply chain resiliency, and we are committed to working collaboratively in support of U.S. manufacturing, jobs and the environment,” Bozzella said. “Resilient supply chains are key to long-term investments in advanced automotive technology — including electrification, advanced safety features, and automated driving systems — and ensuring the U.S. remains an innovation leader.”
The American Automotive Policy Council, a lobbying group representing the Detroit Three, thanked Biden for his administration’s efforts to address the global chips shortage.
“The U.S. auto industry needs immediate action to resolve plant closures and U.S. vehicle production losses, which are impacting hundreds of thousands of American autoworkers, our customers, our businesses and our…
Read More:Automakers react to President Biden intervention on chip shortage
2021-02-24 22:54:05
