Why Is There A Microchip Shortage In The First Place?75
Throughout the 2021 calendar year, headlines have been dominated by the ongoing global microchip shortage, which has impacted production for the entirety of the automotive industry, including General Motors. But why is there a microchip shortage in the first place?
Before we launch into this, it bears mentioning that the impact of the global microchip shortage now extends beyond the automotive industry – smartphones, home appliances, and numerous other industries around the world have all been affected by a scarcity of these small, but critical components. This is important to keep in mind as dwindling microchips supplies are sought after by a multitude of different industries in order to continue to do business, thus increasing competition.
However, if we were to discuss the root cause of the microchip shortage, we could point to the COVID-19 pandemic as the primary driver. As lockdowns were put in place in the U.S. and abroad, consumers started buying a raft of products that require microchips to function. For example, workers looking to log on from home started buying laptops and computers, while televisions, video game systems, and tablets became a hot commodity to help stave off boredom.
In addition to an uptick in demand for consumer electronics, people bought more cars than expected last year, draining supplies even further.
Amid soaring demand, microchip production has stumbled as well, with outbreaks of COVID-19 shuttering facilities, much like in the auto industry. Most microchip production is centered in Asia, and although U.S. semiconductor companies total nearly half of all global sales, only 12 percent of the global manufacturing is done stateside.
Put it all together, and we have our current and ongoing microchip shortage. Back in February, President Biden said he was seeking $37 billion in funding to help boost domestic chip production, while General Motors says it is seeking new supply contracts in order to mitigate some of the effects of the shortage.
Unfortunately, with the ongoing COVID-19 pandemic and continuing high demand for products requiring microchips to function, it looks like we’re still quite a ways off from ending the shortage.
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It’s not just semi-conductors, either.
There are shortages in plastic resin, LEDs, rubber, and foam, too.
Don’t let a crisis go to waste. Make hay while the sun shines. Price increases.
There was also a fire at a Japanese chip manufacture that has contributed to the shortage.
JWL: Yes, very true and this article failed to mention that.
There is No chip shortage, Chips are plentiful foe EV’s not gas vehicles. Barra said that herself that there is no shortage for EV’s.
Why aren’t we making chips in the USA? We have the skills and resources but not slave wages.
Trump pointed out during his term that we needed to get away from the Asian chip grip! No one cared and the demagogues claimed everything Trump said was a lie.
Blame the pandemic? I thought climate change was to be used to blame anything.
Well the chip shortage started an avalanche of shortages.
Also the lock down disrupted production on many items.
Now that we are trying to get back to normal labor is not going back to the same jobs and leaving production stalled on many items with labor shortages as well supply shortages and transportation shortages.
The whole process buckled and is struggling to get back.
We are far from out of the economic woods yet with inflation.
Yes, and at the same time the federal government was handing out money, even to many who did not need it, and with limited travel, it created demand for products that were production constrained.
Cars and travel trailers and appliances are good examples.
If inflation is a big worry then why are banks making long term loans at <3%? Are the bank execs stupid or are they seeing a different view that what is being promulgated by some of the media?
They borrow from federal funds and give loans with a profitable margin above that. Usually the federal reserve raises the discount rate to help calm inflation. So far the Fed hasn’t so the banks borrow from the government @ 0.25% and loan at 2% while inflation is at 5%. They are making money on the margin.
However this is also high inflationary. Fed needs to raise the discount rate so banks won’t borrow as much or else the floods with money.
You haven’t been paying attention, obviously. Inflation has skyrocketed to the highest rate in our history, beating even Jimmy Carter’s disater, thanks to the Obiden administration. Priced wood lately? How about beef, chicken, plastic, GASOLINE? You are delusional if you think that there is not an inflation crisis and that it’s not going to get worse. You sound like Kevin Bacon in Animal House where, at the end of the movie, he keeps shouting, “All is well! All is well!!” as everything around him is being brought down in total chaos. You may need to stop watching MSNBC and try a site like “Just the News” or “Beitbart”, since they report facts, not propaganda.
Media always hides info. They exaggerate the bad.
Bottle beer in short supply too
This proves the vulnerability of companies with outsourcing.
Henry Ford had control of most of his supply line from steel mills to rubber plants. Pay attention mary Barra.
Unfortunately bean counters have placed companies at the mercy of suppliers.
GM has been screwing its suppliers for years. Now the tables have turned and this will get worse as suppliers now have leverage.
Who makes GMs windshields? And air bags?
Anti Monopoly Laws impact what manufacturers can and cannot do.
Anti Monopoly laws only apply to one company controlling the entire industry. aka horizontal integration.
Companies are welcomed to vertically integrate all they want as its totally legal and fine as long as there are competitors in that marketplace.
E teve uma fábrica de semicondutores, que está desativada.
Na realidade, aproveitaram a Covid para diminuir a produção, para barganhar preços maiores, empresários sejam eles americanos, asiáticos não são santos.
First off, there is no pandemic.
Second, there should never have been a lockdown. That was by design. No one, in their right mind, would lock down the world over a 99.99% survivable flu season.
All of this was by design. Create fear and panic, then create the fix. Population control.
CP it’s people like you…
Sadly there are ~640k people in the US alone who can no longer tell you how wrong you are. My wife retired from nursing early due to fear, they had some patients show up positive without knowing it. I’ve lost a coworker, a friend, and a neighbor’s best friend to this so far. Two others in the shop died. My best friend’s son got sick, a healthy 30, who commented that it was worse than anything he’d ever experienced. With ~300,000k people in the US, there is still plenty of fresh meat for the virus to propagate. Do you and others that continue this absurdity require personal experience to believe anything?
I always thought the pandemic would take care of idiots like you !
CP, you’re sick. I never knock down other peoples views but you take the cake. If there is no pandemic, did you take the money (three payments of $2800) and spend it? Why didn’t you return it?
Too many have said the same thing and they are now dead from COVID. GOP leaders from Texas and S. Carolina have died in the last month.
Shut up my body my choice go cry over your dead neighbor nobody cares
No, only if you forget the rest of society! You have every right to die if you’re foolish enough, but you don’t have any right to pass it on and kill someone else!
The vaccine does not stop you from getting it or spreading it now get out of here with your propaganda go back to the cnn website with this bs
My body my choice,
It’s attitudes like yours that perpetuate the virus multiplying and infecting innocent others who are not selfish enough to think that only their rights are valid. That is also why 90+% of the newest Covid deaths are of those who are unvaccinated. You and your fellow anti-vaxers are actually killing yourselves off! Makes no sense.
I got the vaccine what are you talking about? It’s people choice to choose if they want it or not. Again the vaccine does not stop you from getting it or spreading it. Let me people make there own choice you got the vaccine don’t worry about the next man. If it bothers you that much then go cower in your basement
Seriously, CP?? 🙄
SeRiOuSlY Cp 😭 stop crying worry about yourself get your own vaccine and leave the next man alone. If it bothers you that bad go cower in your basement
Chip shortage planned and rigged just like our last national election. Ford was getting F 150 chips from a vendor in China that had a fire in their plant. ???Suspect. Just like the planned C-19 release at Wohan.
Chips are all coming to USA automakers exclusively from Asia. Why let a designed crisis go to waste. Big opportunity to cripple other things and enhance global power position.
Asian carmakers are having no problems getting their chips. It’s a very competitive world game out there. We have been suckered and set back.
Umm, Toyota just idled 40% of their manufacturing capacity in Japan due to the chip shortage.
Correct, and this article is largely a lie because it does not mention chinas chip hording for their “belt and road” initiative the real reason for the shortage is China China China. They created a glue virus, unleashed it on the world, used their corporate power away with Comcast who owns CNN, CBS, NBC and 80% of our newspapers to make this a “pandemic” even though we have not seen as many reported cases of COVID knocking door to door and shoving test kits up people’s noses than we had people report to the hospitals with swine flue, and we have no idea of the actual deaths because they changed the criteria from death from to death with. (FYI, scientifically speaking, infection and death rates don’t reach the numbers for epidemic, much less pandemic) Now China is hording all materials for their power expansions into the Middle East and Africa. It’s time we cut them off.
ABSOLUTELY, JUST LIKE COVID, I AGREE WITH JAKE THE REASON FOR THE CHIP SHOTAGE IS CHINA CHINA CHINA!
well you are wrong about WHY asia chips are a problem. United States, sometime between 2016 and 2020 forced computer chip companies in china to stop getting supplies from the USA or its companies, so shortages started to mount for any company involved in chips in asia. USA cannt get them, and USA does not make enough of them. Because US government banned US companies from doing business with Asia chip companies. Good plan?
Asian makers do have a production problem, stop repeating what internet trolls state without facts. I just ordered a Ridgeline, yes, not a GM truck, and no promises are made. The Honda dealer only had about thirty vehicles in stock.
Honda had to shut down production in Ohio and Alabama because of shortages. A big part is many parts are sitting on ships waiting for dock space and a shortage of truck drivers is just slowing everything down. For the next few months Honda’s will be shipped with one key fob and the second in a few months when chips are available.
The fire was at a plant in Japan, not china. Idiot.
CORRECTION: Fire at chip plant in Japan instead of fire at chip plant in China. Still very suspect. Arson?
Where was the overhead fire suppression equipment in a plant full of very expensive chip making machinery? Where were the plant safety and health people?
Where were their insurance company loss control representatives pre fire?
This whole deal is suspect. Just like a fire in a struggling business or obsolete piece of real estate that occurs on Sunday at midnight. Meanwhile Asian automakers roll on, and vehicles of US automakers pile up on rented lots. ???
I’m confused because of Covid people were staying home and buying computers, gaming consoles, laptops and all sorts of consumer electronics, because they are bored or working at home. But at the same time they are buying new cars, those that sound about right??????
In my case I was laid off a couple of years before my planned retirement. I’ve been saving all my working life so I had the money, so why not? Considering the current demographics of the US, my case can’t be that unusual.
It’s not that they sold more cars. It’s that they sold more cars than expected given the pandemic.
Car manufacturers program their production according to expected sale volume. They commit to an agreed amount of production with suppliers. Suppliers do the same with Tier 2s and so on. The impact of the pandemic on sales was overestimated and they all came up short. It is not easy to scale up production of an entire value chain, specially one as complex as the automotive industry. So when demand was higher than supply some microchips increased their value 10 fold (more in some cases). Imagine how much does that add to the final product being that one car can have 100s of microchips in it. Anyway, that is what they mean with “people bought more cars than expected”. Sorry for the over-explanation, I got carried away.
When it comes to lockdowns on wondering if that will be more of the norm. In the Chicago land area I see mega warehouses of amazon being built, a lot of them
The US back in the ’80s made like 40% or so of microchips. This “let’s go cheap or go home” decided by some privileged, co-aine snortin, Jason Belfort wannabe MBAs that sell this nation short for a profit and to impress their backstabbing “friends” while foreign competitors (not forgotten WW2 defeats) still waiting for us to once again mess up and they swoop in.
Serve the US right to have an unnecessary shortage to bring some critical production back to the States.
Twenty plus years ago chipmaking machines were developed and made by several outfits in the San Francisco Bay area. These chipmaking machines were the standard of the world. Also several chipmakers were situated in the Bay Area using these machines. Intel, AMD, BEA, Motorola, etc.
What came into play was the toxic wash discharge from the chipmaking process exiting into the Bay, even with several filtering processes. EPA didn’t like this discharge. Very toxic. Also, on the peninsula the heavy traffic on highway 101 caused micro vibrations to the slab foundations of the chip plants upsetting the precision of the chip making manufacturing equipment.
The Bay area chipmakers said to hell with this and went into collaborations with Asian chipmakers.
The Asians discharge their industrial liquids, gases, and solids freely into the environment just like the Mexicans in Mexico and in third world countries. Also with no EPA, OSHA and other DOL regulations, along with no labor unions, manufacturing costs are the lowest on the planet in Asia. The General, Ford and Stellantis love the lowest parts costs pursuant to their specifications and quality guidelines. That’s why automakers take vendor and internal parts costing to four, five and even six decimal places.
Caterpillar even moved their undercarriage parts making from Illinois to China under an entity called Asiatrak.
Most of the Motorola plants in Phoenix are closed.
It’s all about the cost accountants recommendations for price competitiveness and profit.
We live in a spreadsheet world.
This C 19 thing and retaliation caught the US automakers with their pants down.
It’s payback time.
Now you know the rest of the story.
The saddest history of American manufacturing is how thoroughly the is government screws our companies over yet exonerates foreign companies. It’s only American companies that pay these fines. Toyota is the bet child of japans government, and over here they make sure to pay as little fines while maximizing sales, while the “big three” have got to fight to maintaine their home territory. Didn’t GMA just do an article that GM paid 50 million last year to the epa because they mostly sell trucks? Our government i swear at times would rather suck up to foreigners before taking care of their own.
@david alan murray , much of that is true. I work for a supplier to chip makers, and those chip machine makers (Lamb and Applied Materials) .
US governement sanctions against China chip manufacturing have not helped supplies. On the plus side, I do hope the $50B gets approved by US government to bring chip manufacturing back to USA! Other note, we had to get some permits for chemical waste in China, it is not quite as loose as you suggest. But it is true that toxic waste from manufacturing would drive people overseas. Really funny side story? We are way too much manual labor here and expensive with unions. The China company created automation to take labor out of the equation, so now, China factory uses less labor, and that labor costs less. True Story.
I live in Nevada. Many years ago several chipmakers and chip machine makers moved from Norcal into Northern Nevada – Reno, Winnemucca, Elko, to avoid high costs in the Bay area and CalOSHA.
All have been gone now for several years – Pacific West Systems, etc., due to Asian competitiveness.
Panasonic is huge into automation. making batteries for Tesla in Reno.
Panasonic has brought in an army of Japanese manufacturing engineers to automate their battery manufacturing section at Musk’s Gigafactory in Reno. Musk in collab with Panasonic has allowed them as a vendor to have shop space in his Gigafacory.
GM and Ford should have allowed Motorola, Intel, Micron, etc., to have shop space in their plants. GM has acres of great shop floor at their Lordstown complex, and both GM and Ford have several stand alone unused plants from their heyday. Ford with Walton Hills and Brookpark Engine Plant # 2 in Cleveland, Ohio, as examples.
Maybe this will be food for thought for the USA automakers in the future.
Let’s put our thinking caps on.
Caterpillar has many acres of great manufacturing space under roof in Mossville, Illinois that is surplus. In fact Caterpillar just demolished a relatively new stand alone diesel engine manufacturing plant in Mossville, Illinois with huge thick concrete floors that would have supported chip making machines.
We got to repurpose and restrategize things more in this global power game. The Asians are eating our lunch.
The Japanese manufacturing engineers at Panasonic in Musk’s Reno, Nevada battery making plant, aka Gigafactory, are like flies on a ribroast automating the battery making process at their vendor space.
Musk is using Panasonic at his battery vendor. Panasonic is doing a stellar job in automating the battery making process. Huge use of robots and transfer machines.
Musk doesn’t want to get caught with his pants down with battery fires. The Tesla owners and insurance companies want zero defects. Panasonic is feverishly working on this.
Who cares the USA is nothing but terrorists the world is finally starting to see them for the trash they really are. The us losing to Afghanistan is one of the greatest things to ever happen. I hope the us auto manufacturers all go out of business very soon.
Go home where you belong and, apparently, would be happier..
And take the two “thumbs uppers” with you.
You mean go home like the USA should of went home 20 years ago? Anyone in the USA can’t say anything about anyone else going home when you invade peoples countries daily. But at least you lost to Afghanistan
Abdul: Why are you living in America since you appear so unhappy and
Who said I was living in America besides you? Please show me where I said that? Don’t make some excuse either just show me where I said that.
Did you see that today? You boys are getting ran straight out of my country 🤣
The rest of the story: GM cancelled some chip orders at the beginning of the pandemic due to poor planning thinking there would be less demand. When GM tried to reorder when the demand didn’t slow down for cars, the chip manufacturers told GM “end of the line”.
Yes, true enough, but so did Ford, Chrysler, Toyota, Honda, Volkswagen, and all the rest. Normal times not a big deal, but all of the automotive manufacturers did not realize at the time that there was about to be a huge increase in electronics sales do to the millions of US Employees that were switched to work from home, and children attending virtual school. The Tech Companies saw this coming and took all of that excess capacity in semiconductors that the auto manufacturers created when they modified/ lowered their parts requirements with their suppliers.
I guess this is yet another reason not to depend on other countries for things we need.
They shut down chip production in Kokomo.
So here is a quick thought, in your local towns and cities through out America, do a drive by of all of your automotive dealers and see which ones have the more loaded lots and which ones are obviously way down in their inventory. This will give you an idea of which manufactures are having a “chip” problem and which ones are not. It was an interesting quick drive where I live here in Southern California (Los Angeles Area) as to which manufactures are “hurting” and which ones are doing okay.
Check it out, see if this fact is true where you live…for me, it was a real eye opener. Have fun in your hometown or city.
Reading these comments shows just how Naive and ill informed some people are
The semiconductor worldwide shortage is created by hoarding by foreign companies after Donld Trump put a ristriction on exporting American manufacturing technologies and semicond materials.
Though small, a lot of chips are required for the covid vaccine shots.
Every vaccine shot has multiple microchips so they can track us and eventually reprogram our thoughts.
I heard it at a rally.
Just wow. Your grasp of physics is astounding.