The global semiconductor shortage is starting to dent the world’s automakers where it hurts — in the pocket book.
General Motors announced this week it is extending temporary shutdowns at three of its North American plants due to the ongoing chip shortage, which is expected to shed billions off automakers’ earnings in 2021, CNBC reported.
The decision to extend the shutdowns at car and crossover plants in the United States, Mexico and Canada is in an effort to prioritize chips for production of GM’s full-size pickup trucks and SUVs, the company said Wednesday.
GM also said its Gravatai plant in Brazil will take downtime in April and May.
GM previously said the North American plants would be closed until at least mid-March, CNBC reported.
The San Luis Potosiplant in Mexico is now scheduled to be down through the end of March, while the US and Canada plants will be shuttered until at least mid-April.
The announcement comes a week after GM CFO Paul Jacobson said the chip shortage was improving, but the company still expected the delays to lower its free cash flow by US$1.5 billion and US$2.5 billion in 2021.
“GM continues to leverage every available semiconductor to build and ship our most popular and in-demand products, including full-size trucks and SUVs for our customers,” the company said in a statement.
“GM has not taken downtime or reduced shifts at any of its truck plants due to the shortage.”
At CAMI, Canadian workers build the Chevrolet Equinox, while at Fairfax, Kansas, it’s the Chevrolet Malibu and Cadillac XT4.
San Luis Potosi manufacturer’s the Equinox, Chevrolet Onix, and GMC Terrain. At Gravatai in Brazil, it’s the Onix and Chevrolet Prisma.
Automakers and parts suppliers began warning of the shortage late last year after demand for vehicles rebounded more strongly than expected after automakers were forced to shut down production last spring to help contain the coronavirus pandemic, CNBC reported.
Geopolitical factors also played a role, specifically when the Trump administration began tightly regulating sales of semiconductors to Huawei, ZTE, and other Chinese firms.
Those companies began stockpiling chips essential to 5G smartphones and other products.
At the same time, American firms were cut off from chips made by China’s Semiconductor Manufacturing International Corporation (SMIC) after the federal government blacklisted the firm.
Consulting firm AlixPartners estimates the chip shortage will cut US$60.6 billion in revenue from the global automotive industry this year.
That estimate includes the entire supply chain — from dealers and automakers to large suppliers and their smaller counterparts, CNBC reported.
Ford has been even more pessimistic than others.
It expects a potential US$2.5 billion hit on profits in 2021, with production impact extending even to its best-selling F-150 pickup.
Toyota, Nissan, VW and Fiat Chrysler (now a part of Stellantis) are among global carmakers that have scaled back output. Other carmakers have announced they’ll likely miss their 2021 targets, The Harvard Business Review reported.
And it’s not just carmakers that are in trouble. The chip shortages are expected to cause widespread shortages of everything, from electronics to medical devices to technology and networking equipment.
As reported by Reuters, automakers and medical device manufacturers have asked the Biden administration to subsidize construction of new US semiconductor manufacturing capacity.
And in response to the shortages, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor firm, has increased its 2021 capital spending budget to US$28 billion.
But funding and building a new semiconductor fab is at least a five-year process.
Semiconductor chips are extremely important components of new vehicles for areas like infotainment systems and more basic parts such as power steering and brakes.
Depending on the vehicle and its options, experts say a vehicle could have hundreds of semiconductors.
Higher-priced vehicles with advanced safety and infotainment systems have far more and different types of chips than a base model.
Because automakers are prioritizing their high-inventory vehicles, the shortage hasn’t yet been reflected in the selection of vehicles reaching dealer lots.
Nonetheless, this could change, and buyers could end up not being able to find the cars that they want.
Sources: CNBC, SlashGear.com, Car & Driver, Harvard Business Review, Reuters