Chip Shortage Hits Automakers Hard, Especially Detroit

A new report from car industry analysts AutoForecast Solutions reveals that at least 875,000 cars have been pulled out of production in America due to the microchip shortage. Detroit is bearing the brunt: Ford alone is estimated to have canceled production of a planned 324,616 vehicles; GM, 277,966; Stellantis, 252,193. Here are the Top Ten vehicles being put on production ice:

– Ford F-series: 109,710*

– Jeep Cherokee: 98,584

– Chevrolet Equinox: 81,833

– Chevrolet Malibu: 56,929

– Ford Explorer: 46,766

– Jeep Compass: 42,195

– Ford Edge: 37,521

– Ford Escape: 36,463

– Ford Transit: 26,507

– Chrysler Voyager: 25,728

Here are some facts that may help you better understand the situation.

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Why are microchips such a big deal with cars?

A newly-designed car has “anywhere from 30 to 150 microchips” inside of it, according to Kelley Blue Book. The chips run everything these days: The infotainment system, cruise control, fuel injection, tire pressure sensors, power seats, et cetera.

Why is there a chip shortage?

When the pandemic first hit, auto sales collapsed—not due to a lack of demand, but because dealerships and factories had to be shuttered to follow safety protocols. With no new cars being moved, automakers practicing just-in-time inventory canceled orders of incoming chips–which in retrospect was a gigantic mistake.

With everyone trapped at home, the pandemic spiked demand for computers, appliances and other electronics, which of course all use chips, so non-automotive orders piled in for the chip manufacturers, eating up their capacity. By the time automakers started revving back up last September, “they basically had lost their place in the manufacturing queue to get chip supplies,” Don Clark, a tech journalist for the New York Times, explained on an episode this week of the Brookings Institution’s Dollar & Sense podcast.

Why don’t chip manufacturers just open new plants? Aren’t they leaving money on the table?

Right now there’s a lumber shortage, although the southern U.S. is “swimming in wood” supply, according to Brooks Mendell, CEO of Forisk Consulting. The problem is that there aren’t enough sawmills, and setting up a new one takes two years and about $100 million in capital.

Similarly, setting up a new factory to make microchips requires two years of construction and $4 billion, according to Bloomberg. It then takes time to dial production in, so nearly 50% of the chips coming off the line at startup are defective. To work out the bugs and actually become profitable requires “a half-decade path,” and few investors have the stomach for it.

What does this mean for the near future?

Interestingly, it may mean we see more pickups and SUVs being made–and not the entry-level ones, either. Basic vehicles that are affordable for the average schlub are not as profitable as the large, well-optioned vehicles that richer people like to buy. So guess which models the few available chips are being shunted towards?

*While Ford has had to cancel, technically speaking, the finished production of nearly 110,000 of their bestselling F-150s, they’re still building them–just without the chip modules. “Ford will build and hold the vehicles for a number of weeks,” the company said in a statement, “then ship the vehicles to dealers once the modules are available and comprehensive quality checks are complete.”

Ford’s Louisville Assembly Plant, which makes the Escape (MSRP around $25k) has been plagued by shutdowns. Meanwhile their Kentucky Truck Plant—which makes the pricier Super Duty (~$34k to $80k-plus), Expedition (~$50k) and Lincoln Navigator (~$75k)—has not shut down, according to the Courier Journal.

When will the chip shortage end?

It doesn’t look good. Fortune reports “There’s consensus that supply will remain tight throughout 2021,” and quotes some chip manufacturers themselves saying they won’t catch up until 2023.

The pandemic prompted lots of folks to take up low-tech hobbies like cooking and crafting. It appears this less bright age for technology may persist for a while yet. Will it trickle down into product design? I think we’ll certainly see less techie objects going up on crowdfunding platforms, and I can’t help but notice that the EDC category—filled with chip-free hand tools—continues to rise in popularity.

Source: core77

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