Why is GM shutting down plants?
General Motors, parent company of Chevrolet, GMC, Cadillac, and Buick, said it was temporarily halting production at six of its North American factories as a result of the global chip shortage. It's the latest major automaker to be affected by the tight supply of essential computer chips. The VergeGM temporarily shuts down North American factories because of chip shortage
04 September, 2021 - 09:21pm
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GM blamed the shutdowns on the continued parts shortages caused by semiconductor supply constraints from international markets experiencing COVID-19-related restrictions.
Industry analysts say the delta variant of the coronavirus has hit employees at chip factories in southeast Asia hard, forcing some plants to close. That’s exacerbated a chip shortage that was starting to improve earlier in the summer.
The economic reality is the world is in the grips of a global chip shortage because demand for semiconductors is surging far beyond capacity for supply. The shortage is causing a ripple effect, crippling all kind of businesses, but it is impacting the auto industry the worst.
How bad is it? Automakers reported that U.S. dealers had just under a million new vehicles on their lots in August, 72 percent lower than the 3.58 million in August 2019, according to the AP.
Franklin County auto dealer lots support these statistics. There are lots of empty spaces where vehicles used to be parked. Car dealers have dealt with inventory shortages before but nothing like this. They are struggling to get their hands on inventory.
Local consumers are feeling the pinch of this global economic phenomenon.
The combination of scarce inventory, low interest rates, a strong economic recovery and robust consumer demand has created a frenzy for new and used vehicles that some are calling “insane.”
The New York Times reported some dealers are calling and emailing former customers, offering to buy back cars they sold a year or two earlier because demand for used vehicles is as strong as it is for new cars, if not stronger. Used car prices are up about 45 percent over the past year, according to government data published this week. New car and truck prices are up about 5 percent over the past year. You can still buy new and used cars, but the buying experience is vastly different than it was a year ago.
The issues caused by the semiconductor shortage in the U.S. auto industry raise serious concerns about its impact on other industries and national security.
Semiconductors are the foundation of everything from weapons systems to technologies used daily by consumers and all kinds of businesses. The current shortage has exposed gaps and vulnerabilities across the global semiconductor supply system, according to the Los Angeles Times.
Although American companies are still prominent throughout the semiconductor industry, most chip production has moved out of the U.S. to southeast Asia, including China. That is a real concern.
President Joe Biden recently ordered federal agencies assess the reasons for the potential scarcity of many materials essential to national security, including semiconductors. He also has called for a $50 billion investment in the semiconductor industry, and the Senate has called for significant increases in funding for research and development.
That is a start. But all you need to do is drive by a local car dealership lot to appreciate why we need a more vigorous national strategy to prevent future computer chip shortages — preferably a strategy predicated on more U.S. production of semiconductors.
03 September, 2021 - 08:04am
While many auto biggies no longer release monthly sales data, most of which that report have witnessed a year-over-year decline in sales volumes. Per Morgan Stanley, U.S. light vehicle sales declined 17% year over year last month. Based on the estimates of J.D. Power and LMC Automotive, Cox Automotive and TrueCar, sales were anticipated to decline 4-18%, as shortage of semiconductor supply along with a rebound in global coronavirus cases had further disrupted the supply chain. In August, seasonally adjusted annual rate (SAAR) declined to 13.09 million light vehicle units, marking the lowest SAAR reading in 2021 so far, after a high of 18.5 million in April, and the weakest since June 2020.
U.S. auto giant Ford F suffered the worst blow, with sales plummeting 33.1% year over year to 124,176 units. While sales of the namesake brand declined 32.5%, that of Lincoln fell 44.3%. Most of Ford’s hostellers saw double-digit declines, with sales of F-Series, Ranger, Transit, Escape, and Explorer tanking 22.5%, 67.7%, 36.1%, 32.6%, and 56.9%, respectively, on a year-over-year basis. Ford currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
South Korea-based automakers Hyundai and Kia posted U.S. sales of 56,200 units and 54,009 units, down 3.7% and 5.3%, respectively. Sales volume declined for Hyundai’s popular trucks including Palisade, Tuscan and Santa Fe last month. Sales of Kia’s Telluride, Seltos and Sorento models also fell.
Owing to the chip deficit and associated production challenges, vehicle demand-supply balance has been severely disrupted. The industry is struggling with low inventory, with less than a million vehicles in inventory for retail sale versus around 3 million two years ago. Quoting Thomas King, the president of the data and analytics division at J.D. Power, “Although inventory is arriving at dealers daily, it is simply replacing the vehicles being sold, preventing dealers from increasing inventories to a level necessary to support a higher sales pace.”
Fleet sales for August are likely to total 107,387 units, indicating a decline of 7.4% and 48% from the corresponding months of 2020 and 2019, respectively. As it is, fleet sales to rental car companies, corporations and government agencies have been rather slow to recover than retail sales. Aggravating supply chain disruptions will only worsen the volumes, going forward.
Shortage of semiconductors in the auto sector has proven to be a speed-bump for automotive production and sales. Reportedly, the ongoing semiconductor chip shortage is expected to hit revenues from the global automotive industry to the tune of $110 billion in 2021. Additionally, renewed strains with the resurgence of COVID-19 cases — especially in Asia — will further hit chip production. Most of the auto bigwigs believe that the chip deficit will linger well into 2022.
With the situation getting worse, automakers are forced to slash production and temporarily shutter factories. For instance, General Motors GM will be suspending operations or extending downtime at eight plants in North America during the next two weeks, including two factories that manufacture the firm’s hot-selling Chevrolet Silverado truck. Last month, the company said that it expects production to decline by 100,000 vehicles in North America during second-half 2021 from the first half. Ford has also cut production of trucks at the Kansas City Assembly Plant for two weeks. The company will also reduce shifts at two more truck plants in Michigan and Kentucky. Stellantis STLA has extended output suspension at several plants in Europe. Last month, Toyota announced that it would slash global output for September by 40% from its prior plan. German auto giant Volkswagen VWAGY expects chip supply to be extremely tight and volatile in the third quarter of 2021, which is set to limit production as well as sales.
In light of the current situation, carmakers and dealers will have a very tough time to rapidly restore inventories and meet the mounting demand of vehicles. In the absence of a quick solution to this chip problem, consumers are likely to have a hard time in finding new vehicles and specific models at dealerships. In other cases, with prices going through the roof owing to supply-demand mismatch, customers might just not be willing to pay a heavy premium to get their hands on vehicles of their choice.
The FAA confirmed on July 12 that some undelivered Boeing 787s have a new manufacturing quality issue the company needs to fix before shipment. Boeing met with FAA on Aug. 2 to persuade the agency to approve an inspection method that would speed deliveries with targeted checks rather than nose-to-tail teardowns, the newspaper said. The regulators flagged internal company disagreements over the aircraft sample size, and repeated that Boeing's employee group that acts as an in-house regulator needs to concur with the company's proposals, the report added.
August is usually a pretty calm month in the stock market, but it was eventful this year. Consumer sentiment dropped sharply in August in an abrupt about-face after more than a year of recovery. Analysts cited weak automobile sales and concerns over the COVID delta variant as causes.
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03 September, 2021 - 12:00am
03 September, 2021 - 12:00am