The heads of major automotive companies say there’s no immediate end in sight to a global chip shortage that has halted assembly lines across North America and seen new car prices swell.
The semiconductor shortage, caused by the coronavirus pandemic and exacerbated recently as the new delta variant has swept through Asian countries that produce the chips, is likely to last for the rest of the year, according to the auto chiefs.
Gathered in Munich this past weekend for the first major auto show since the start of the pandemic, executives from Volkswagen, Daimler, Ford, and others said the shortage could even stretch into the next two years.
“Probably we will remain in shortages for the next months or even years because semiconductors are in high demand,” Herbert Diess, CEO of Volkswagen, told Bloomberg. “It will be probably a bottleneck for the next months and years to come.”
Ola Kallenius, the CEO of Daimler and head of Mercedes-Benz, told reporters he believes the shortage could last until 2023, while Ford Europe’s Gunnar Herrmann told CNBC he estimates the shortage could last until 2024.
“It’s definitely an issue which we are wrestling with,” Herrmann said, noting that despite healthy demand for vehicles, the fresh wave of chip shortages is a “new crisis.”
The continuing semiconductor shortage means vehicle prices are likely to remain higher than usual as factories suspend production and car dealerships struggle to fill their lots. Americans spent an average of $42,736 to buy a new vehicle in July — a record high, according to Kelley Blue Book, and up 8.2%, or more than $3,000, since the same time last year.
It also means thousands of auto industry employees across North America are facing short-term layoffs and earning less money as they collect unemployment insurance instead of their regular wages.
Most recently, General Motors announced that starting Labor Day, most of its North American assembly plants would pause production due to the chip shortage.
“COVID is driving supply constraints in countries that produce semiconductor chips,” GM spokesman Dan Flores reportedly said. “But I can’t say if it’s because employees have a high rate of infection or if it’s the government putting restrictions on plants due to the pandemic.”
Autoworkers at plants across North America have faced temporary layoffs since the start of the pandemic when businesses worldwide closed their doors to stem the spread of the deadly virus.
As demand grew during lockdowns for other products requiring semiconductors, especially personal electronics such as video game consoles, chip manufacturers turned their focus toward those industries, crunching supply.
And cars, with an ever-growing list of digital gadgets and features, need more semiconductors than ever before, especially with electric vehicles, further complicating the issue for automakers struggling to resume full production at their assembly plants. Ford’s Herrmann said a typical Ford Focus uses around 300 semiconductors, while an electric car takes 3,000. He said the company is also starting to see shortages in raw materials as well, such as steel and plastics.
Though automakers were optimistic that semiconductor supply would rebound as the pandemic seemed to be easing up, the delta variant has shattered those expectations.
Countries in Southeast Asia, many of which have dismal vaccination rates, have been hit hard by the highly contagious delta variant in recent months, disrupting the massive manufacturing industry there and the global supply chain that relies on it. Countries such as Malaysia, a major exporter of electronics and semiconductors, were forced to lock down this summer as a result of a surge in infections.
As U.S. factories have temporarily shut their doors, many automotive workers have been able to earn a large portion of their usual salaries — but not the full amount. Brian Rothenberg, a spokesman for the United Auto Workers, said the auto union’s contracts with the Detroit Three, which includes Ford, Chrysler, and General Motors, “provide for supplemental pay on top of unemployment insurance in instances like these.” He said union members can make up to 80% of their regular wages.
Still, the economic hit has been significant, and lawmakers in Washington have sought to address the supply chain issue by funding the production of semiconductors in the United States. In June, the Senate passed a $250 billion science and manufacturing bill that included a $2 billion federal incentive for those who invest in the type of semiconductor manufacturing that serves the auto industry.
“These technologies are going to be critical for the future, and as this semiconductor shortage has shown, we must secure our supply chains by expanding production and manufacturing right here in the United States,” Michigan Sen. Gary Peters, a Democratic member of the Senate commerce committee, said at the time.
Peters, who helped secure the semiconductor provision in the bill, said the legislation also includes “$50 billion to ramp up and incentivize the production of semiconductors of all kinds in the U.S. — for a total of $52 billion.” But the bill, titled the U.S. Innovation and Competition Act of 2021, has yet to pass the House.
Virginia Sen. Mark Warner, a Democrat on the Finance Committee who has also co-sponsored semiconductor legislation, urged the lower chamber to pass the bill “as soon as possible” after General Motors announced its temporary shutdowns last week.
“While the impact of this funding will not solve the global semiconductor shortage overnight, the longer we wait, the worse this supply chain crunch will become,” Warner said.
