A global microchip shortage is limiting car production worldwide, leaving dealers with a limited supply of cars to sell and pushing prices higher for consumers. Analysts say it could last into 2022.
Automakers Warn of Cuts
Volkswagen CEO Herbert Diess this morning told reporters the world’s largest automaker is “for sure, in crisis mode” due to the shortage. While discussing strong first-quarter sales, Diess said the automaker had built about 100,000 fewer cars than planned through the first three months of 2021.
“We will do everything to offset a significant amount of the lost cars in the second half of the year,” he said. But Diess warned that the shortfall would “substantially burden earnings.”
General Motors has built nearly 80,000 fewer cars than planned to date this year. Automakers have tried to limit effects to less-popular models. But GM has been forced to slash the production of some popular SUVs and build its best-selling Chevy Silverado and GMC Sierra pickups without a fuel management system that improved their fuel economy.
In its first-quarter earnings report, Ford warned that it might be forced to halve production in the second quarter. Travelers driving into Churchill Downs for the running of last weekend’s Kentucky Derby were awed by the sight of thousands of Ford F-150 pickups filling rented parking lots along I-71.
Ford has built the trucks without needed microchips and stored them. The company plans to “ship the vehicles to dealers once the modules are available and comprehensive quality checks are complete,” a spokesperson told reporters.
Ford CFO John Lawler said the company has about 22,000 unfinished vehicles awaiting semiconductors.
COVID Crisis to Blame
The average new car contains anywhere from 30 to 150 microchips. They control everything from engine timing to cabin temperature. Automakers cut their orders last year as the COVID-19 crisis kept Americans from buying new cars. But consumers worldwide found themselves working and attending school from home. They went on a shopping binge for new computers and other electronics. Microchip factories pivoted to making chips for those devices instead of for vehicles.
Now that Americans are buying cars again, semiconductor manufacturers lack unused factory time to make new chips for cars. A fire at one of the largest manufacturers serving the auto industry has compounded the problem.
Chip Industry: This Will Take Time
There’s no easy end in sight. Taiwan Semiconductor Manufacturing Co (TSMC) is the world’s largest manufacturer of microchips. TSMC CEO Mark Liu told CBS’ 60 Minutes this week that the company “can catch up the minimum requirement of our customers, before the end of June.”
But meeting that minimum won’t end the chip shortage. “There’s a time lag,” Liu explained. “In car chips particularly, the supply chain is long and complex. The supply takes about seven to eight months.” That would push any recovery into next winter.
President Biden has signed an executive order starting a review of semiconductor manufacturing supply chains and has asked lawmakers for funding to address the crisis. But a White House official told Reuters this week the administration was unlikely to invoke the Defense Production Act to help the auto industry.
For car shoppers, the news is bleak. New car prices are rising. Used car prices are up dramatically. There’s even a rental car shortage triggered, in part, by the crisis. And it appears that this market will be with us into 2022.
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