June 25, 2021

Gp Delivers1

The excellent automotive artisans1

Biden to meet with auto executives on painful chip shortage

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

Jim Barcus for General Motors

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

But Brown, president of a United Auto Workers local chapter in Kansas, describes the ongoing semiconductor chip shortage that’s costing automakers billions and forcing massive temporary layoffs as more “disappointing” than previous work stoppages, because he feels it could have been avoided.

“I’m not a corporate multibillionaire, but it doesn’t take a rocket scientist to know that there’s something wrong with this,” he told CNBC. “I’ve been with General Motors for over 40 some years, and in all 40 some years, they’ve taught me one thing: Where is ‘Plan B’? If ‘A’ is not working, where is ‘Plan B?’ Something has to be done so this will never happen again.”

The White House held a virtual CEO Summit on Monday where President Joe Biden met with executives from the auto, tech, biotech and consumer electronics industries to discuss the chip shortage. Participants included CEOs Mary Barra of GM, Jim Farley of Ford Motor and Intel’s Pat Gelsinger.

After the meeting, GM, Stellantis and a lobbying group for the Detroit automakers issued statements saying they were grateful the Biden administration held the meeting and was making the issue a priority. They said they looked forward to working Biden to resolve the shortage.

Gelsinger told Reuters on Monday that Intel is in talks to start producing chips for carmakers within six to nine months. Cara Walker, an Intel spokeswoman, said the production is part of a recently announced program to open its factories to manufacture for other companies. She said the initial response to the Intel Foundry Services program “has been very positive.” The Detroit automakers did not immediately respond to requests for comment.

Auto executives started warning of a chip shortage late last year. Those warnings quickly turned into temporary plant closures for the auto industry, causing automakers to temporarily layoff tens of thousands of U.S. autoworkers for varying periods of time since the beginning of the year. Brown’s roughly 2,000 hourly workers at GM’s Fairfax Assembly plant were among the first to lose work when the factory was idled by GM in early February due to the parts shortage.

“I just hope that those people in charge, including the president, can come up with a plan so that this won’t happen again,” said Brown, who met Biden during a campaign visit to the plant in 2019. “It’s not just a General Motors or Ford or car thing. This has affected other areas of this country as well.”

But experts and company officials say there’s little to nothing Biden can do to force chipmakers, a majority of which are in Asia, specifically Taiwan, to allocate more to the U.S. automotive industry. Biden could try to pressure them. He has also backed proposals for tax incentives to U.S. manufacturers to make the critical parts in America to avoid future shortages. 

“One of our hopes would be that we could come out of the meeting with a path and a road map to getting back to fulfilling 100{184722e0e226bcc33313b73fd463388417f454aa3a20797559fe2c0007fff18a} of automotive semiconductor orders and have some real insight and transparency into what that timeline might look like,” said Matt Blunt, president of the American Automotive Policy Council, which represents GM, Ford and Stellantis NV.

Blunt, the former governor of Missouri, said producing more semiconductors domestically is a bipartisan issue due to the “significant impact the auto industry has on the U.S. economy and the significant negative implications of this semiconductor shortage.”

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

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

Semiconductors have extremely long production schedules and shipping times due to the amount of materials and parts used in the chips. Only about 12{184722e0e226bcc33313b73fd463388417f454aa3a20797559fe2c0007fff18a} of them are produced in the U.S., according to officials.

‘Critical inflection point’

U.S. President Joe Biden signs an executive order, aimed at addressing a global semiconductor chip shortage, as Vice President Kamala Harris stands by in the State Dining Room at the White House in Washington, February 24, 2021.

Jonathan Ernst | Reuters

“How the U.S. government invests in the semiconductor industry likely will determine the future of domestic technology innovation and U.S. global leadership,” he said during the virtual discussion Thursday on the CHIPS for America Act hosted by the Department of Commerce.

The three-hour forum included tech executives as well as leaders from smaller companies and policy groups, among them Blunt and John Bozzella, CEO of the Alliance for Automotive Innovation, which represents the vast majority of automakers with operations in the U.S.

Bozzella urged the Biden administration to adopt policies that encourage U.S. manufacturers to build semiconductors in the U.S., including a investment tax credit that could “help companies offset the cost of creating new lines within existing facilities or reallocating current production to meet evolving needs.”

Low priority

There is a myriad of reasons why automakers aren’t the top priority for chip manufacturers. First off, the auto industry only accounts for 5{184722e0e226bcc33313b73fd463388417f454aa3a20797559fe2c0007fff18a} or less of the global usage of chips, according to officials. Many of the chips the industry uses are older, or “legacy,” products that many companies aren’t willing to invest in to produce. They instead focus on more advanced semiconductors for tech and consumer products.

Michael Hogan, a senior vice president of chipmaker GlobalFoundries, which is scheduled to take part in Monday’s meeting with the Biden administration, said those chips still compete with consumer products for supply at “multiple levels in the supply chain” even though they are older.

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

Jeff Kowalsky | AFP | Getty Images

Auto impact

Automotive executives have characterized the chip shortage as fluid. GM, Ford and others have said the shortage will cut billions off their earnings in 2021.

Auto research firm LMC Automotive predicts the global automotive industry will produce 811,000 fewer vehicles this year, including 175,000 in North America, as a result. The forecast takes into account much of a nearly 1.4 million decline in global vehicle production during first quarter that is projected to be made up in the second half of the year.