September 28, 2023

General Motors employees work on the assembly line at the Fairfax Assembly & Stamping Plant in Kansas City, Kansas.

Jim Barcus for General Motors

Clarence E. Brown has experienced union strikes, shutdowns, and layoffs due to shortages of parts during his 47 years with General Motors.

But Brown, president of a local chapter of United Auto Workers in Kansas, describes the ongoing shortage of semiconductor chips that is costing automakers billions and is massively enforcing them temporary layoffs as “more disappointing” than previous stoppages as he believes this could have been avoided.

“I’m not a multimillionaire of a company, but it doesn’t take a rocket scientist to know that something is wrong with it,” he told CNBC. “I’ve been with General Motors for over 40 years and in all 40 years they’ve taught me one thing, where is’ Plan B ‘? If’ A ‘doesn’t work, where is’ Plan B’? ‘Something has to be done about it this never happens again. “

The White House is hosting a virtual CEO summit on Monday lunchtime where President Joe Biden will meet with executives in the auto, technology, biotech and consumer electronics industries to discuss the chip shortage. Scheduled attendees include CEOs Mary Barra from GM, Jim Farley from Ford Motor and Intel’s Pat Gelsinger.

At the end of last year, car managers warned of a lack of chips. Those warnings quickly turned into temporary plant closings for the auto industry, leading automakers to temporarily lay off tens of thousands of U.S. auto workers for varying periods of time since the start of the year. Brown’s roughly 2,000 hourly workers at GM’s Fairfax assembly plant were among the first to lose their jobs when the plant shut down in early February due to GM’s parts shortage.

“I just hope that those in charge, including the president, can work out a plan to keep this from happening again,” said Brown, who met Biden during a campaign visit in 2019. “It’s not just a General Motors or Ford or a car thing. It has affected other areas of the country as well.”

However, experts and company officials say there is little Biden can do to force chipmakers, much of which are in Asia, particularly Taiwan, to devote more to the US auto industry. Biden could try to pressure her. He has also supported proposals for tax incentives for US manufacturers to manufacture the critical parts in America to avoid future bottlenecks.

“One of our hopes would be to come out of the meeting with a way and roadmap to get 100% of automotive semiconductor orders back and get real insight and visibility into what that timeline might look like,” he told Matt Blunt, president of the American Automotive Policy Council, which represents GM, Ford, and Stellantis NV.

Blunt, the former governor of Missouri, said domestic production of more semiconductors was a non-partisan problem because “the auto industry is having a significant impact on the US economy and the negative effects of this semiconductor shortage are significant”.

Consulting firm AlixPartners predicts the shortage will cost the global auto industry at least $ 60.6 billion in 2021.

Under the Biden $ 2 trillion infrastructure proposal unveiled earlier this month, $ 50 billion was earmarked for the American semiconductor industry. On February 24, he also ordered a 100-day review of the U.S. supply chains for advanced batteries, pharmaceuticals, critical minerals, and semiconductors.

Semiconductors have extremely long production schedules and lead times due to the amount of materials and parts used in the chips. According to official figures, only about 12% of it is made in the USA.

‘Critical turning point’

Semiconductors are key components in the automotive industry that are used in, among other things, infotainment, power steering and braking systems. With multiple factories closed last year due to Covid, suppliers turned semiconductors away from automakers and into other industries, creating a shortage after consumer demand fell more than expected. The parts can contain different sizes and types of chips.

Tom Quillin, senior director of security and trust at Intel, said last week the tech giant “sees America at a critical turning point” in terms of semiconductor manufacturing – not just for the auto industry, but for the tech industry as well.

United States President Joe Biden signs an ordinance to remedy a global semiconductor die shortage as Vice President Kamala Harris stands by in the State Dining Room of the White House in Washington on February 24, 2021.

Jonathan Ernst | Reuters

“How the US government is likely to invest in the semiconductor industry is likely to determine the future of domestic technology innovation and US global leadership,” he said during Thursday’s virtual discussion of the CHIPS for America Act by the Bureau of Industry and Security Department of Commerce, Technology Evaluation Office.

The three-hour forum included technical executives as well as executives from smaller businesses and political groups, including Blunt and John Bozzella, CEO of the Alliance for Automotive Innovation, which represents the vast majority of automakers operating in the US

Bozzella called on the Biden administration to adopt guidelines encouraging US manufacturers to build semiconductors in the US, including an investment tax credit that “could help companies reduce the cost of creating new lines in existing facilities or building new ones.” Compensate for reallocating current production to meet changing needs “.

Low priority

There are a variety of reasons why automakers are not a top priority for chipmakers. First of all, the auto industry accounts for only 5% or less of global chip consumption, according to official figures. Many of the chips the industry uses are also older or “legacy” products that many companies do not want to invest in to produce. Instead, they are focusing on more advanced semiconductors for technology and consumer products.

Michael Hogan, senior vice president of chip maker GlobalFoundries, who is due to attend its meeting with the Biden administration on Monday, said the chips are still competing with consumer products for “multiple levels in the supply chain” despite their age.

This photo shows 2018 and 2019 Ford F-150 trucks on the assembly line of Ford Motor Company’s Rouge Complex on September 27, 2018 in Dearborn, Michigan.

Jeff Kowalsky | AFP | Getty Images

“These times today are unprecedented, extremely difficult, but ironically I think we are offering the best possible prospects for the industry and the country if we act now and boldly fund the CHIPS law,” he said during the forum last week.

Experts say a vehicle could have hundreds of semiconductors depending on the vehicle and its options. High-priced vehicles with advanced security and infotainment systems have far more than a basic model, including various types of chips.

Automakers have given priority to assembling more profitable vehicles like full-size pickups by reducing the production of cars and crossovers. The automakers in Detroit even partially build pickups to be completed and shipped at a later date.

The shortage resulted in significant price and demand spikes in 2021, according to Smith, a Houston-based independent distributor of electronic components. Some open market prices have risen 5 to 20 times this year, according to the company.

“Demand for semiconductors for the automotive industry has grown steadily since the beginning of the year,” said Marc Barnhill, Smith’s chief trading officer, in a statement sent via email. “Smith’s market intelligence data now suggests an even greater tightening of lead-time and increasing demand. There has never been a shortage of automotive semiconductors like this, and it is far from over.”

Automatic impact

Automotive executives have described the chip shortage as fluent. GM, Ford and others said the shortage will reduce their revenues by billions in 2021.

Auto research firm LMC Automotive predicts the global auto industry will produce 811,000 fewer vehicles this year, 175,000 of them in North America. The forecast takes into account much of the nearly 1.4 million decline in global vehicle production in the first quarter, which is expected to offset in the second half of the year.

“The industry is facing a very different environment than it has been for a long time,” said Jeff Schuster, LMC President for America and Global Vehicle Forecasting. “We’ve said this a couple of times for a variety of reasons, but this is unique in that they can’t build what they want and what they could sell. That will likely take until 2022.”

GM predicts the issue will cut operating profits by $ 1.5 billion to $ 2 billion this year, while Ford said the situation could cut profits by $ 1 to 2.5 billion by 2021.

The financial ramifications of the shortage are not lost for Brown, president of UAW Local 31 in Kansas. But its members, like many manufacturing workers, simply want to get back to work building the Chevrolet Malibu and Cadillac XT4 for GM.

“In this place we stuck together in difficult times and we stick together now,” he said. “I just hope and pray that the shortage will be over as soon as possible … and I would like to think we can have more of these jobs in the United States after that to make sure we can insure ourselves if something happens . “

– CNBC’s Michael Bloom contributed to this report.