As auto leaders push for set-aside chips, Biden administration remains non-committal

Riley Beggin
The Detroit News

Washington — To address the shortage of semiconductor chips kneecapping auto production, CEOs of the Detroit Three used a virtual meeting Monday with major tech companies to ask the Biden administration to help bolster chip production for the automakers.

But the administration has indicated privately to semiconductor industry leaders that it would not support "special treatment" for the auto industry, Bloomberg reported — even as auto industry interest groups used the run-up to the White House meeting to press for exactly that. 

Asked directly whether the administration had discussed prioritizing orders for automakers with semiconductor companies, White House Press Secretary Jen Psaki was noncommittal: "One of the reasons the president is stopping by this meeting ... is to hear directly from companies about the impacts, what would help them most through this period of time.

"This isn't a meeting where we expect a decision or an announcement to come out of, but part of our ongoing engagement and discussion about how to best address this issue."

General Motors Co.'s Mary Barra, Ford Motor Co.'s Jim Farley and Stellantis NV's Carlos Tavares sought help with the semiconductor chip shortage. Groups representing major automakers are seeking a set-aside portion of any chip production that comes from negotiations in Congress as they compete with tech companies for the valuable parts. The Biden administration may not be amenable to that.

President Joe Biden participates virtually in the CEO Summit on Semiconductor and Supply Chain Resilience in the Roosevelt Room of the White House, Monday, April 12, 2021, in Washington. Seated with Biden are Daleep Singh, Deputy National Security Adviser and Deputy Director of the National Economic Council, clockwise from bottom left, National Economic Council Director Brian Deese, National Security Adviser Jake Sullivan and Commerce Secretary Gina Raimondo.

The auto sector uses "legacy" chips rather than the advanced chips used in electronics and consumes only around a small percentage of chips worldwide. But the chips are vital in the engineering and production of modern vehicles worldwide, especially the high-margin pickups and SUVs that drive profitability in the U.S. market.

The CEOs of major tech companies such as Google, Dell, HP, Samsung and AT&T attended the meeting as well. So did the CEOs of major chip producers, including Intel, Taiwan Semiconductor Manufacturing Co., NXP and Global Foundries. 

The president also briefly joined the meeting hosted by National Security Adviser Jake Sullivan, National Economic Council Director Brian Deese and Secretary of Commerce Gina Raimondo. 

"I've been saying for some time now, China and the rest of the world is not waiting. And there's no reason why Americans should wait. We're investing aggressively in areas like semiconductors and batteries, that's what they're doing and others, so must we," Biden said after the meeting. 

President Joe Biden holds up a silicon wafer as he participates virtually in the CEO Summit on Semiconductor and Supply Chain Resilience in the Roosevelt Room of the White House, Monday, April 12, 2021, in Washington.

He added: "This is a moment for American strength and American unity for government, industry, communities to work together to make sure that we're ready to meet the global competition that lies ahead."

Biden also said he received a letter Monday from a bipartisan group of 23 senators and 42 House members supporting the CHIPS for America Act, which would implement manufacturing and research incentives for the semiconductor industry. He proposed $50 billion to fund initiatives under the CHIPS Act in the $2 trillion jobs and infrastructure package introduced last month. 

U.S. Rep. Marcy Kaptur, D-Ohio, co-chair of the House Auto Caucus, said she would support Congress setting aside a portion of chip funding for the auto industry. 

"Because the automotive industry is being asked to do somersaults," she said. "It's being asked to convert to a largely electric car platform, and that's going to require a lot more chips.

"Those cars have half as many parts as normal cars so you're going to have upheaval in the industry if you don't keep supply chain manufacturing in this country. We don't want this put into industries that are offshored. We want this to be onshore and specifically directed at the United States automotive and truck manufacturing industry — what's left of it."

AlixPartners, a global consulting firm, has estimated that the industry has lost 1.4 million vehicles of production globally due to the chip shortage. The firm predicts up to 2.5 million vehicles could be lost this year and the industry as a whole would lose $61 billion if the trend continues.

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.

Semiconductor chips are crucial vehicle components, powering GPS, power steering, crash detection systems and more. When automakers restarted their plants last spring after an eight-week shutdown, the supply of chips failed to keep pace with unexpected demand for new vehicles in 2020.

Auto industry leaders have said a portion of funding in federal proposals aimed at bolstering U.S. chip production should be set aside for the auto industry to prevent this from happening in the future. They argue automakers' plans to increase production of electric vehicles — which fits into the administration's goals to cut emissions from the transportation sector — may depend on it.

"It's a crisis right now, and the brunt of the overhang is on the automakers," said Dan Ives, an analyst for investment firm Wedbush Securities Inc. "And they're doing everything in their power to at least set goalposts to have a moderation of the chip shortage in (the third quarter.) But realistically, right now, the hands are tied.

"There's going to be strong words, but there's minimal actions that can be done in the near term to resolve this tsunami that we're seeing in the chip shortage."

The chip shortage exposes an issue "decades in the making," Ives said: The supply chain for many electronics and auto parts is cemented in Asia. That's highlighted by both the chip shortage and recent threats to the battery supply chain. 

The White House meeting comes just days after the Biden administration was spared from having to weigh in on a controversial International Trade Commission decision that would have delivered a blow to Ford and other automakers: two rival South Korean battery manufacturers reached a settlement in a trade dispute. 

The ITC found that SK Innovation, a battery maker that is contracted to supply batteries for Ford and Volkswagen AG, had destroyed evidence in a case alleging the company had stolen trade secrets from LG Chem and barred the company from importing batteries to the U.S. for 10 years.

Under the settlement, the two battery companies agreed to drop litigation related to the case if SK paid LG $1.8 billion. Before that, Biden was faced with deciding whether to overturn the ITC decision — which would have been only the second time a president had done so in the last three decades. The decision also squeezed him between two competing interests: cracking down on unfair trade practices and expanding EV production to reduce emissions.  

These vulnerabilities are "ultimately going to drive a green manufacturing ecosystem to be built, from the superchargers to factories to battery makers to the OEM manufacturing," Ives said. "But that's not going to happen overnight. This is a wake-up call."

The administration considers the chip shortage a national security issue, Psaki said: "We believe there needs to be a holistic, long-term, across-government approach."

Detroit automakers and leading groups representing the industry released statements Monday saying they appreciated the administration's attention to the issue, with some again noting the importance of prioritizing automotive supply. 

"We look forward to continuing to work with the administration and members of Congress to address the global shortage and need for near-term prioritization of automotive semiconductors to help U.S. automotive manufacturing resume normal levels of production," GM spokeswoman Jeannine Ginivan said in a statement. 

The Semiconductor Industry Association said in a statement last week that the U.S. share of global semiconductor manufacturing has decreased from 37% in 1990 to 12% in 2021. 

That's largely due to "substantial subsidies" offered by foreign governments, it said, "placing the U.S. at a competitive disadvantage in attracting new construction of semiconductor manufacturing facilities."

In addition to supporting the CHIPS Act, Biden also has ordered a 100-day review of the U.S. supply chains for electric vehicle batteries, rare earth minerals and semiconductors. 

GM and Ford announced Thursday that additional plants would scale back production due to the chip shortage. The Detroit automakers are also partially building pickup trucks and setting them aside until enough chips can be found.

"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," Raimondo said during a briefing Wednesday. "If we don't invest in semiconductors, we're going to fall further behind."

Twitter: @rbeggin