In mid-September, automakers trimmed 76,000 vehicles from their production plans. The company says they will produce less than expected.
Analysts have predicted for a long time that there would be a shortage of chips by the end of the year. Hope seems to have been shattered by new production cuts.
How did we get here?
GM's flexible electric vehicle platform looks promising for the mass market.
More than 17 million cars were purchased by Americans in 2019. For the fifth year in a row, we did it.
Cox automotive projects that Americans may have bought less than 13 million by the end of the decade.
The average price of a new car in August was $48,301, which is 10.8% higher than a year ago.
There is a problem. There is a shortage of chips.
Do you need a car loan? It is getting harder to get them.
The most expensive cars used to be the only ones with chips. Even a highly affordable, low-tech car like theMitsubishi Mirage contains dozens of tiny microprocessors. They control a lot of things from traction control systems to cabin temperature.
A high-end luxury car like the Mercedes-Benz EQS can have hundreds.
The auto industry has a limited supply of crucial chips.
Demand for new cars plummeted in the early days of the COVID-19 Pandemic because of travel restrictions. The automakers limited their orders because of the slow vehicle production.
Car factories slowed down, but chip factories didn't. New electronics were ordered by consumers to make it easier to work and attend school from home.
Demand for new cars increased when people were allowed to travel again after beingvaccinated. The automakers wanted to order new chips. The chip factories were busy. They have yet to catch up.
Americans are thirsting for new features in their cars. A near-record 17.5% of new cars sold in August were luxury cars.
The global chip production is starting to recover.
In August, chip makers fulfilled orders an average of one day quicker than in July.
The industries that use chips are not selling as well as they could. Chris Rolland reported that demand for new cellphones has slowed.
The supply chain for personal computers is "operating more like the historical norm" in September according to the CFO of Dell Technologies.
The investors seem to think the market is cooling. The Philadelphia Stock Market Semiconductor Index was down more than 30% year-to-date.
Why are automakers cutting production when chip production is improving?
High-end chips used in computers and cellphones aren't the chips that cars need.
Today's cars are littered with older, low-power microchips performing simple functions because of the automotive industry's modular design approach.
When buying a new car, it's important to look for the best technologies.
The chips for use are certified by the automakers. They can't swap a more complex chip for an older one that has been through safety testing.
The head of European technology research for JP Morgan said that they will get a lot more capacity in the second half of the century. I think things could be normal by the end of the year if there wasn't this issue.
When the most profitable decision is to build cheaper devices in cars, chip manufacturers will only convert foundries from making high-end computer bound chips. The change doesn't come fast.
It takes a while to fulfill orders once it arrives. A typical Semiconductor production line can involve 700 manufacturing steps across 14 weeks according to a procurement and supply chain expert.
Production capacity is being increased by chip manufacturers. It takes a long time to start up a new factory.
Plans for two new chip factories in Ohio were announced by Intel in January. The first usable chips will be produced sometime in the year 2046.
It's possible that domestic production is part of the answer. The US produced almost 40% of the world's chip supply in 1990. Only 12% of global supply is made in the country.
If the US goes into a recession, these are the most vulnerable housing markets.
The auto industry used to keep a lot of new cars for sale. Most cars were discounted when dealers kept a lot of inventory.
Once chip production recovers, that practice may not come back.
"We will never go back to the level of inventories that we held pre-pandemic because we have learned we can be much more efficient," GM GM, -58%) CEO Mary Barra said last year.
Nicolas Peter, BMW's Chief Financial Officer, told the Financial Times last fall that the company plans to stick with the way it manages supply.
The parent company of Mercedes-Benz has a similar idea. The CFO of Daimler said that they would undersupply demand.
Ford may move closer to a build-to-order business model, though it won't sell cars directly to customers as promised by the CEO.
Big inventories and hefty discounts may not return.
The U.S. economy loses billions of dollars a year due to the decline in refugees.
The automakers want to make as many cars as possible. They may not be able to make more than that.
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