Detroit Three meeting with White House amid chip shortage forces signals alarm

Kalea Hall Riley Beggin
The Detroit News

Detroit — A White House meeting set for Monday that includes General Motors Co. CEO Mary Barra and Ford Motor Co. CEO Jim Farley underscores deep concerns the lengthening semiconductor chip shortage is threatening to slow the economy's momentum and imperil jobs. 

Barra, Farley and executives from roughly a dozen other major companies — including Stellantis NV and chip manufacturers — are scheduled to attend the meeting with National Security Adviser Jake Sullivan, National Economic Council Director Brian Deese and Commerce Secretary Gina Raimondo. Other companies expected to attend include Google, AT&T, Intel, HP, Dell and NXP, among others. 

Theron Wiley, center, of Mayville, uses a hoist to lower an engine onto a chassis as Trevor Groombridge, left, and Anthony Polite, right, attach the engine to the chassis at GM Flint Assembly plant.

The high-level discussion, called by the White House, signals alarm that the jobs-rich auto industry is too reliant on supply chains sourced primarily from Asia — an open secret in the global auto space exposed by the coronavirus pandemic. White House officials say the meeting is intended to explore ways to strengthen the U.S. supply chain for semiconductors "and other key areas."

In a statement reported by Bloomberg, Sullivan described the shortage as a national security vulnerability: "The president is deeply committed to ending the silos between domestic and foreign policy, and the semiconductor shortage is a perfect example of an urgent economic and national security priority for the Biden administration."

Automakers have been battling the chip shortage since the start of the year. The global shortage is likely to cost millions of units in lost production as well as billions in profits that fund electric-vehicle product programs, white-collar bonuses and profit-sharing payouts to union workers, among other things. 

AlixPartners, a global consulting firm, estimates the industry so far has lost 1.4 million vehicles of production globally because of the chip shortage. If the current trend continues, the firm predicts up to 2.5 million vehicles could be lost this year and the industry as a whole would lose $61 billion.

A recovery is expected to begin by the third quarter. All production lost should be made up by next year, but thinning inventories this year amid surging consumer demand for new pickups, SUVs and electric vehicles mean the chip shortage is likely to restrain otherwise robust sales. 

Last year, people home-bound during the coronavirus pandemic spent more on electronics, prompting chip manufacturers to boost supply to tech companies as automakers slashed orders in the early days of the pandemic. When automakers restarted their plants after an eight-week shutdown, the supply crunch failed to keep pace with unexpected demand for new vehicles in 2020.

Complicating the mess: a semiconductor plant fire last year, followed by another in Japan last month, could also further affect production. That is deepening concerns in the White House, the auto industry and the tech industry that supply chains for critical components are too thin and fragile.

"That will make things worse," Dan Hearsch, managing director at AlixPartners, told The Detroit News in an interview this week. He added it's hard to point to one event that made the situation worse: "It's impossible to follow that chain up from the outside."

The Alliance for Automotive Innovation, a trade group that lobbies on behalf of the automakers, sent a letter this week to the U.S. Department of Commerce asking that funds included in a proposed bill for increasing semiconductor production be allocated for supply that supports the auto industry.

"The chips that are generally used in vehicles are not the same chips used in consumer electronics devices," Alliance CEO John Bozzella wrote. That's why Congress should set aside a percentage of any funding for chip manufacturing to projects that will produce auto-grade chips, he said.

"A significant investment in and sustained commitment to building additional domestic semiconductor capacity that meets the future needs of the auto industry in the United States is absolutely essential."

Biden has repeatedly discussed the need to strengthen U.S. supply chains, including those for semiconductor chips. His $2 trillion jobs and infrastructure proposal would include $50 billion for semiconductor manufacturing and research. 

"We all know semiconductors are the building blocks of our future economy, and as we go through the data and digital revolution, semiconductors underpin so much of the new technology where we'll see job creation," Commerce Secretary Gina Raimondo said during a briefing Wednesday. "If we don't invest in semiconductors, we're going to fall further behind."

Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, explained the expansion of electronics in vehicles has made the industry dependent on semiconductors primarily imported from Asia. 

"Cutting costs is important for profitability, but reliance on core components shipped from the other side of the world is just asking for problems with exchange rates, government stability, port or packaging issues, natural disasters, pandemics, or, as in this case, competitive demand for similar products," he said in a statement to The News. "Shoring up the supply chain, preferably by in-sourcing, will take another hurdle out of the way as vehicles only get more and more reliant on electronics."

Plans for the auto executive meeting with Biden officials come as GM on Friday confirmed it will be running plants during its typical summer shutdown weeks to meet demand, as well as canceling some overtime in key U.S. plants building profit-rich pickups.

The Detroit automaker will operate all of its U.S. assembly plants, except its midsize truck plant in Wentzville, Missouri, during the weeks of June 28 and July 5 to keep up with high demand for products while the chip shortage continues. GM's Wentzville plant will have downtime during this period for a new model changeover.

Ford said Thursday it would run all of its U.S. plants during the typical summer shutdown except Louisville Assembly, where the Ford Escape and Lincoln Corsair are built. Stellantis, maker of Jeep SUVs and Ram trucks, hasn't confirmed whether any of its plants will continue to operate during summer shutdowns.

On Thursday, GM and Ford announced additional plants would take downtime because of the shortage. GM has been aiming to protect its profit-rich full-size SUV and truck plants. On Friday, though, GM confirmed it had canceled overtime shifts at both its Fort Wayne, Indiana, light-duty truck plant and its Flint heavy-duty plant. 

GM spokesman David Barnas said the automaker continues "to leverage every available semiconductor."

"As we continue to manage the semiconductor impact on our plants, we are balancing parts availability with our ability to run efficiently for the entire week," Barnas said in a statement. 

GM made the following changes to weekend production at the plants:

  • Canceled scheduled overtime production for this Saturday at Ft. Wayne Assembly
  • Canceled overtime production for this Saturday; Sunday; and third shift Friday evening at Flint Assembly

khall@detroitnews.com

rbeggin@detroitnews.com