General Motors is planning a one week halt in production at its truck plants in Michigan, Indiana, and Mexico. That's because of a global computer chip shortage that recently worsened.
The computer chip shortage began during the pandemic last year.
Dan Hearsch is a managing director in the automotive and industrial practice at AlixPartners. He said automotive manufacturers at first believed the pandemic last spring would flatten car sales for an extended period of time. So they pulled their orders for semi-conductors (also called computer chips).
Then, when sales swiftly roared back, car companies put their orders back into a supply chain that generally requires a nine month lead time. Hearsch says the sudden halt and sudden resumption of demand caused "a lot of noise," that tangled the flow of supplies.
Then, two nearly back-to-back incidents further affected the supply of chips this year.
The first was the February storm in Texas, which affected the semi-conductor manufacturers located in that state.
"And the other one -- there was a large fire at a plant in Japan (in March) that makes a lot of semi conductors that go into cars," said Hearsch, "so that destroyed a lot of material in production and took a large piece of capacity out."
The Japanese plant just recently re-opened.
The incidents caused Alix Partners to dramatically bump its original estimate of industry-wide losses from the shortage in 2021 from $61 billion to $110 billion.
Hearsch said car companies will need to rethink their economical practice of keeping very lean inventories of things like chips going forward.
"Automakers typically only give between four and twelve weeks of really firm orders for products. Some of these products -- [order lead times] are going to have to get longer."
(Bloomberg News reported that Toyota is the only global automaker that has navigated the semi-conductor shortage with relative ease, thanks to supply chain management changes it made after the tsunami in Japan in 2011.)
Hearsch said consumers are paying record high prices for what new and used vehicles remain on dealer lots, so dealer profits are very high.
But car companies, while they do not have to offer any incentives to boost sales, are losing large sums related to plant slowdowns and shutdowns, and inventory management costs.
Hearsch said the biggest impact of the shortage is on automotive suppliers and in particular their workers, many of whom work in non-union shops, and who have endured periods of unemployment during temporary layoffs.
