The global microchip shortage has dealt a major blow to the auto industry hard, with automakers forced to cut production and losing billions in revenue. Now, it looks as though the shortage will end up costing the industry nearly twice as much as originally expected.
According to a recent report from Detroit Free Press, which cites an analysis by consulting firm AlixPartners, the global microchip shortage will end up costing the global auto industry upwards of $210 billion in lost revenue, nearly double what was forecast in May ($110 billion).
According to the report, the microchip shortage will force automakers to cut production by as 7.7 million units this year, once again nearly double the 3.9 million units forecast to be lost back in May.
“Of course, everyone had hoped that the chip crisis would have abated more by now, but unfortunate events such as the COVID-19 lockdowns in Malaysia and continued problems elsewhere have exacerbated things,” said global co-leader of the automotive and industrial practice at AlixPartners, Mark Wakefield.
Recently, General Motors president Mark Reuss said that he expects the global microchip shortage to begin to stabilize, albeit not at the volume needed by the auto industry in order to continue production at the level desired. Earlier in September, General Motors CFO Paul Jacobson indicated that the global microchip supply is expected to begin evening out next year.
The latest estimates put lost production for General Motors this year at 800,000 units, with nearly every one of GM’s production facilities impacted by the microchip shortage. One of the hardest hit is the GM Fairfax Assembly plant in Kansas, which has been idle since February, and is responsible for production of the Cadillac XT4 and Chevy Malibu.
General Motors has opted to employ a number of strategies in an effort to curb the impact of the microchip shortage, including prioritization of its most popular models, namely its full-size trucks and SUVs. General Motors has also opted to produce certain models in an incomplete state, only to complete those models at a later date once additional microchip supplies have been sourced.
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Comments
I enjoy reading the GM authority every day I do have a question ordered a Camaro back in August from my local dealer curious when it might be started and completed and shipped?
Jeff don’t fell bad I ordered a new 2022 Rapid Blue Convertible on the first day you could April 8. 2021. They have yet to give me a order number. How they may start up Oct.4 again but like my dealer said we might have rain too. I’ll put money on snow before the Lansing Grand River Plant starts again. That’s the only place the Camaro is made . Good luck …
I would imagine the Camaro is probably at the very bottom of the list for getting back into production. They want to sell those trucks if at all possible.
Yep, that’s where the money is, especially with the Refreshed Silverado /Sierra, the Redesigned Colorado/Canyon and the all new Z06 set to hit the dealers sometime next year.
Do not feel bad my friend ordered a loaded Savanah 18 months ago.:(
The global chip shortage is keeping ICE vehicles off the road. Let’s keep it up until most vehicles being produced are EVs.
You think EVs don’t need chips also? They don’t have anti-lock brakes and key-less systems? Battery management is all done with mechanical parts?
I wonder how much “lost ” sales revenue will be made up by increased prices and profits on
existing sales ?
Right on. Since MSRP is already published I suspect profits are relatively fixed for “Chevrolet”, but the dealers on the other hand, will reap the benefits of supply and demand through dealer premiums and markups.
Looking to order a GMC 2022 terrain Denali dealer told me If I put my order in I will be in Q for to built but he can’t promise the vehicle probably in to later fall month nov dec if we get lucky plant shut down till mid oct . I told sales person I think I will get vehicle in jan or feb if I’m lucky but who know if there won’t be any mire delays which look like there will be !!!
Maybe just maybe we should produce the chip needed in this country. Daaaaaaa!
You say that as if we actually can.
At best, we’ll probably give TSMC a tax free factory somewhere in the US.
TSMC is building a MEGA Facility in Phoenix Arizona right now as we speak. Over 2000 yards of concrete is being poured every other day. Trust me they’re going as fast as they can with this new plant to get it up and running.
Thirty years ago Phoenix, Arizona was the chipmaking capitol of North America. Motorola was the huge player with around 10 chip plants in the Phoenix area employing around 1K+ workers at each plant. Digital Equipment had a huge chip plant just off Interstate 17. Bull of England had a huge chip plant, as with Honeywell, etc.
What happened to cause the dry up? Cost. Cost. Cost. Less expensive ( cheaper ) to produce in Asia.
Intel didn’t get the Asian chip cost and supply chain bug totally and has huge and expanded chipmaking operations in Phoenix. Intel does have a chipmaking plant in Viet Nam.
Intel did not get caught with their pants down on chip shortages. Intel went into collaboration with Micron in Boise, Idaho on chip production.
Tesla require a ton of chips for each vehicle. Musk has used his connections to avert any chip shortages for Tesla vehicles. Musk has a huge project currently going on at his Gigafactory in Reno, Nevada….chip manufacturing in cahoots with Panasonic. No shortage of Teslas for lack of chips.
I actually interviewed for a job as a contract to employee to work on engine control electronics design at GM’s facility Kokomo, Indiana in the mid 1980s. At the time, GM operated possibly the world’s largest chip foundry in Kokomo. The contemporary GM ECUs were based on a microprocessor called the GMP4 which was an adaptation of Motorola’s 6809 microprocessor.
Even then GM’s supply chain was very globalized. I can imagine how much more extensive globalization is now. The problem with the electronic parts is twofold. First, it takes a few years to get a chip foundry on line, no matter where the facility is built. Second, the bare silicon parts have to be packaged, and the pandemic caused a global labor shortage either through lockdowns or people unwilling/unable to work. Chip packaging is a rather specific semi skilled job and it takes some time for workers to develop necessary skills. It is still a reality that regardless of circumstance that labor is less expensive outside the US. From my now old experience, it is the manual labor in packaging the chips which is one of the larger expenses and time bottlenecks in physical production of parts.
I have a feeling that there would be a lot of pushback if it were somehow possible for the US government to mandate on-shore production of goods. The previous administration tried tariffs, with limited success. Mostly the only result was that prices increased to incorporate the cost of tariffs. It is a race to the bottom. If Ford were to procure off shore trying to beat GM prices, GM would follow suit. Blame the majority of consumers who don’t care where what they buy is produced as long as it costs less.
Hey Bill:
Your comment is spot on. Chip production requires an army of packaging workers. It’s semi skilled repetitive labor like boxing premium individual chocolates at a See’s or Russell Stover chocolate factory. The workers are a relatively fungible group like Walmart retail clerks. It all comes down to the least cost per hour that workers will accept and be recruited.
Asian workers are willing to take several times less than USA workers and the Asian employer has no threat of unions and OSHA, or Cal Osha which is tougher than Fed OSHA. Environmental regulations, etc.
It’s all about following the money, or lesser costs per unit thereof.
That’s why Caterpillar is moving manufacturing operations out of the Midwest USA.
Caterpillar now has 38 facilities in China.
CAT makes all their undercarriage parts in China for their worldwide needs through their unit Asiatrak in China.
Lesser unit costs prevail. That’s why manufacturing cost accountants, quality control, and purchasing departments take per unit piece part costs into the four to six, even eight decimal places.
Sadly it would require at least three years to get production up and running, so not a short term solution.
Good Old Henry – He realized that to be in control , you needed to OWN your parts sources .. He had everything except tires and rubber if I remember … Its a shame The auto companies and the Fed did not realize the stupidity of not enought Semi conductor / chip lants ON American Soil.
We have seen the enemy….and it is US!
I remember vehicles that had no need for chips. You rolled the windows up and down with a hand crank. Oh yeah …. you could work on your own vehicle, too.
True. I have a 1963 Studebaker whose wiring diagram fits on a single 8.5 x 11 sheet of paper without being crowded for space. On the other hand, the maintenance interval is 1,000 miles. It is a good idea (even more so than it is now) to keep some basic hand tools in the car at all times. Before I installed a Pertec drop-in replacement CD ignition points replacement, there were a few times I had to stop to adjust the points (there are two sets of points in the distributor). I got to where I could get the dwell pretty close by eye.
I have rehab’ed a few Carter and Quadrajet carburetors. Doing a good job requires a fair amount of patience. Even basic throttle body fuel injection from the early 1980s made life much simpler. It is pretty difficult to have a mechanical carburetor which gives close to zero warm-up time at all temperatures. Vapor lock in hot weather is a thing of the past. Chips aren’t always a bad thing.
There was a reason that corner gas stations with a couple of maintenance bays were everywhere up through the 1970s. There were three gas stations within easy walking distance of where I live. People who didn’t have mechanical ability had to constantly take their cars to have things adjusted or repaired.
Hey Bill: Excellent comment..
My comment on current motor vehicle complexity.
Vehicle owners manuals now have several hundred pages, versus pamphlets of 20 or so pages from years ago.
I thought vehicles were for transportation not traveling entertainment centers.
Bill: Your comment about fuel-service stations with two to three bays from the distant past due to servicing needs is interesting. As you indicated it was due to more frequent service attention to fuel delivery systems, spark ignition systems, belt adjustments, radiator service, etc. on the vehicles of that era. Improvements in these components changed the frequency and type of service.
Another factor at play is that vehicle and equipment makers have designed their products to have their authorized dealers have the knowledge, tools and capability to service their products.
Manufacturers want to see their dealers profitably successful to plow profit revenues back into the dealer business versus paying taxes to Uncle Sam. The dealers structure and facility strength enhances the factory. It’s a win-win for both.
Automakers intentionally design vehicle systems to be serviced by their dealers. Diagnostic codes, special tools, service information, factory training, etc.
Parts and service revenues make up approximately 80% of the dealers profit picture.
This movement to make vehicle owners captive to the factory franchise dealers service departments began about 40 years ago and has been quite successful.
The fuel filling service station from the past has evolved into a self service fuel, food and beverage outlet where consumers can both fuel their vehicles and their stomachs, buy smokes, play slots and relieve themselves. In fact the profitability of the food, beverage and tobacco sales at these outlets brings a 30+% ROI.
Modern motoring America.
It will be extremely interesting when the road induction charging systems for the future EV’s will have on the current model of fuel-convenience stores.
Thanks David, excellent expansion on the comments.
I was talking with a person who owns a Subaru dealership. He said he would not sell their current electrified models because of the capital investment in service equipment and staff education required to commit to selling the EVs. He felt the EVs would not generate enough revenue because they don’t need as much servicing.
Indeed a cradle to grave tie of the customer to the dealership is what they want.
Still waiting on my 2022 Camaro 1SS…..lovely.
You’d think GM would find a way to combat this, like bringing chip production in house.
Car companies have become famous for outsourcing… Why spend 2 billion on a plant when you can get some one else to.. Further their own enjineers suck at designing software that can be used by multiple chips .
GM is it true that any chips you get you’re going to build big trucks and SUVs because that’s where you make your most money the Camaro I ordered will definitely be on the back burner the way I understand
Three days or three years doesn’t matter. All that matters is starting now that we know about the chip problem.
We need to start some place, yes use the chips that are produced in another country for now but figure out what can be done for the future. Long term problems can only be accomplished by solving the problems now.
Blame the Great Recession followed by the pandemic. GM operated its own silicon foundry in Kokomo, IN through mid 2017, though it had begun to scale back work at the fab in 2016. GM felt strongly enough to retain the Kokomo silicon fab even though it spun off Delphi in the 2009 bankruptcy process. That also meant that the fabrication equipment was becoming rapidly out-dated and too expensive to update versus outsourcing s the chip supply.
The problem with outsourcing is you’ve got to get your order in the queue for production well in advance of when the chips are required. The lead time can be a year or more to fill an order. Car makers procrastinated and allowed other industries to line up first and tie up silicon production. GM is learning there are also costs of not keeping own silicon foundry open even if the unit costs of the chips produced there is higher. Not being able to finish assembling vehicles is expensive.
Blame the Great Recession followed by the pandemic. GM operated its own silicon foundry in Kokomo, IN through mid 2017, though it had begun to scale back work at the fab in 2016. GM felt strongly enough to retain the Kokomo silicon fab even though it spun off Delphi in the 2009 bankruptcy process. That also meant that the fabrication equipment was becoming rapidly out-dated and too expensive to update versus outsourcing s the chip supply.
The problem with outsourcing is you’ve got to get your order in the queue for production well in advance of when the chips are required. The lead time can be a year or more to fill an order. Car makers procrastinated and allowed other industries to line up first and tie up silicon production. GM is learning there are also costs of not keeping own silicon foundry open even if the unit costs of the chips produced there is higher. Not being able to finish assembling vehicles is expensive.
(I posted this text with a link to a news article regarding the closing of the Kokomo fab, but that apparently has gone into moderation limbo. Here it is sans link.)
GM has learned a hard cold lesson in this chip production issue.
Somebody finally gets it, it’s not only about the money.