A variety of vehicles are delivered near a Fiat Chrysler Automobiles (FCA) dealership in Gurnee, Illinois, the United States, on Jan 5, 2021. (JOEL LERNER / XINHUA)
It has been more than two months since a new General Motors car rolled off the production line at the US automaker's huge factory in Kansas.
GM officials have said that the Kansas City plant will remain closed until May 10.
A global computer-chip supply crunch that has spread to a range of other consumer electronics, including smartphones, personal computers, refrigerators and microwaves, is now especially hammering all US automakers.
Semiconductors are extremely important components of new vehicles for features like infotainment systems and more basic parts such as power steering and brakes.
US carmakers are competing against the sprawling consumer electronics industry for chip supplies, amid a shortage that has driven up costs of even the cheapest components of nearly all microchips, increasing prices of final products
Depending on the auto and its options, experts say a vehicle could have hundreds of semiconductors. Higher-priced vehicles with advanced safety and infotainment systems have far more than a base model, including different types of chips.
The US auto industry is the nation's largest manufacturing sector, contributing US$1.1 trillion to the economy, or 5.5 percent of GDP.
GM expects the chip shortage will cut its earnings by as much as US$2 billion in 2021. Ford said the situation could reduce its earnings by up to US$2.5 billion this year.
But US automakers aren't the only ones hurting. Virtually no automaker in the world has been spared. Auto industry manufacturers across the globe are expected to lose billions of dollars in revenue this year. Consulting firm AlixPartners put the number at US$60.6 billion.
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The origin of the chip shortage in the auto industry dates to early last year when the coronavirus pandemic caused rolling shutdowns of vehicle assembly plants. As the facilities closed, chip suppliers diverted parts to other sectors such as consumer electronics.
There was an explosion in demand for computer chips during the pandemic as millions of employees working at home used and acquired more smartphones, PCs and gaming consoles, causing a near-term spike in demand that eventually led to an unprecedented global shortage.
Chip manufacturers started redeploying their capacities to consumer electronics, which was growing because of people working from home and "virtual working patterns", said Hau Thai-Tang, Ford's global head of product development and purchasing, last year.
Increasing prices
So now US carmakers are competing against the sprawling consumer electronics industry for chip supplies. Consumers also bought more cars than industry officials expected last spring, further straining supplies.
But that insatiable demand isn't the only reason that semiconductors are in short supply, say analysts. They point to shifting business models in the industry that have also created a bottleneck at outsourced chip factories. The relatively small number of chip manufacturing plants and the lack of competition is another issue.
The shortage has driven up costs of even the cheapest components of nearly all microchips, increasing prices of final products.
The chip shortage is going to take "a couple of years" to abate, as demand soars alongside limited manufacturing capacity, said Pat Gelsinger, the new CEO of Intel
Qualcomm, whose chips feature in Samsung phones, is one major chipmaker struggling to keep up with demand. Apple's major supplier Foxconn also warned of the chip shortage affecting supply chains to clients.
The majority of chip production occurs in Asia, where major contract manufacturers such as Taiwan Semiconductor Manufacturing Co, or TSMC, and Samsung handle production for hundreds of different chip companies.
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US semiconductor companies account for 47 percent of global chip sales, but only 12 percent of global manufacturing is done in the US.
Sanctions against Chinese technology companies have further exacerbated the crisis.
Eric Xu, the rotating chairman of Chinese telecommunications giant Huawei Technologies, said US sanctions imposed on the company over the past two years are "hurting the global semiconductor industry "because they have "disrupted the trusted relationship in the semiconductor industry".
Speaking to analysts in Shenzhen at Huawei's Analyst Summit on April 12, Xu said: "The US sanctions (are) the main reason why we are seeing panic stockpiling of major companies around the world."
The US imposed sanctions on Huawei after accusing it of building backdoors into its equipment, saying it could harm national security. Huawei denies the allegations.
The chip supply crunch has most visibly hurt automakers, forcing them to temporarily idle factories, even though the strains are felt in a variety of businesses.
The chip shortage is going to take "a couple of years" to abate, as demand soars alongside limited manufacturing capacity, said Pat Gelsinger, the new CEO of Intel.
