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Automakers forced to cut production amid global shortage of computer chips

Car manufacturers are in direct competition for chips with a consumer electronics industry facing its own surge in demand.
A worker handles copper lead frames inside the production chain at Renesas Electronics, a global Japanese semiconductor manufacturer, in Beijing on May 14, 2020.Nicolas Asfouri / AFP via Getty Images file

The Ford plant in Louisville, Kentucky — along with its 3,900 employees — stands idle this week, after the automaker was forced to temporarily halt production due to shortages of critical microprocessors and other computer chips.

Ford isn’t alone. Fiat Chrysler is idling production at a Brampton, Ontario, plant; while Subaru will trim “several thousand” vehicles from its production schedule at plants in the U.S. and Japan due to chip shortages. General Motors, Honda, Renault, Toyota and Volkswagen are also feeling the impact — with others expected to follow.

Ironically, the situation was exacerbated by the industry’s unexpected rebound from the Covid-19 pandemic that led to lengthy factory closures last spring, said Kristin Dziczek, a senior industry analyst with the Center for Automotive Research. Manufacturers have ramped up production to respond to inventory shortages, putting them into competition for chips with a consumer electronics industry facing its own surge in demand.

“Today’s automobiles use a huge number of computer chips, chips in the engine, chips in the seat, chips in everything, but they’re in tight supply right now,” Dziczek said.

FCA has scheduled downtime at its Canadian plant, which builds the Chrysler 300, Dodge Charger and Dodge Challenger, while also delaying resumption of production at a Mexican Jeep factory already idled.

“We are working closely with our global supply chain network to manage any manufacturing impact caused by the global microchip shortage,” FCA told NBC News in an emailed statement.

Subaru, meanwhile, is trimming output at an Indiana plant, while halting production at a factory in Japan for two days while it assesses its supply situation. Rival Nissan has cut production in Japan. Volkswagen, in turn, has slowed operations at factories in North America, Europe and China. Toyota has had to make similar cuts.

Honda indicated it may be forced to cut back operations in February. And Daimler AG Chairman Ola Källenius said it’s “too early to tell” if and when the German company’s Mercedes-Benz and Smart brands might be forced to curb production.

Manufacturers have been reluctant to openly discuss shortages in detail, citing competitive concerns, but the biggest problems involve microprocessors and other digital devices used to control engines and transmissions. There also have been supply constraints involving the Wi-Fi and Bluetooth and video display systems becoming increasingly ubiquitous in today’s vehicles, as well as microchips needed for the latest smart safety systems, such as blind-spot detection.

The pandemic led to a lengthy shutdown by auto plants in North America last spring, as well as shutdowns in Europe, Latin America and Asia. When sales bounced back more quickly than expected, manufacturers started pushing production to the max to make up for depleted inventories.

But the consumer electronics industry was itself dealing with record demand for smartphones, computers, game consoles, web cameras and other devices as much of the country went into lockdown and tens of millions of Americans were forced to work from home. In recent months, the industry has faced shortages of its own.

Still, in a battle for scarce chips, Dziczek said, consumer electronics manufacturers often win “because they’re willing to pay more” for the chips they need.

Chip suppliers have been pushed to ramp up production, but there are limits to how fast they can respond due to the cost and complexity of expanding existing facilities and adding new plants. Complicating the problem, automotive chips often are supplied by older “foundries” using dated 8-inch wafer technology that is difficult to update.

Last October’s fire at a major chip plant in Japan owned by Asahi Kasei Corp. has compounded headaches, especially for Japanese automakers.

President Donald Trump’s ongoing trade war with China hasn’t helped, either. Restrictions announced last year on Semiconductor Manufacturing International Corp. sent automakers operating in the U.S. scrambling for alternative supplies.

Then, there’s the complex layer of interlocking suppliers the auto industry must deal with. Many of the key, digital components used in today’s vehicles come from outside parts vendors, such as Canadian mega-supplier Magna International and German giant Robert Bosch.

“Despite the difficult market situation, Bosch is doing all it can to keep its customers supplied and to keep any further impact to a minimum,” the German supplier said in a statement.

But, in turn, those Tier I suppliers often purchase bits and pieces from lower-tier vendors. A glitch at any level of the chain can leave automakers empty-handed.

Analysts and industry officials agree the situation is likely to only get worse in the weeks ahead. And that will compound the challenge the auto industry faces recovering from the setbacks of 2020.

“We expected supply chain disruptions” post pandemic, said Michelle Krebs, a principal analyst with Cox Automotive, but this has hit harder and faster than anticipated. “The chip shortage is only going to make things worse,” she added, especially for manufacturers coping with “products already in extremely short supply.”