Keepening shortages of key auto parts such as microchips and seat foam are combining with packed ports and a cargo crunch to shut down auto assembly lines — even as dealers clamor for inventory to meet strong demand from increasingly confident consumers.
Production complications are hitting Ford, General Motors, Toyota, Honda, Nissan and Volvo, the automakers said last week.
Some said they will suspend production lines as they await parts, and others are selectively choosing which models to produce. Some are attempting creative workarounds, such as postponing the installation of certain electronic modules until after a vehicle is built.
A SUPPLY CHAIN MESS
Multiple problems are bringing down North American vehicle production
- Microchips are still in short supply.
- The pipeline for producing foam for vehicle seats has been interrupted.
- Texas winter weather cut output of petrochemical-based resins and coatings.
- Japan's February earthquake took some suppliers offline.
- The world inventory of shipping containers is jumbled.
- The industry is still working through COVID-19 limitations.
The microchip shortage has converged with supply chain interruptions from natural disasters to create an operating challenge for an industry that has enjoyed improving sales since the second half of 2020. But the tension is sure to rise as retailers head into the traditional spring selling season with renewed hope amid widespread COVID-19 vaccination programs.
"The current supply chain issues represent an unusual combination of factors, including shipping constraints, chip shortages and rising consumer demand," said Karl Brauer, executive publisher at CarExpert.com. "While consumer demand was a key component in 2020's reduced new-car sales, production and distribution constraints will likely be the limiting factors for 2021."
In a clear escalation of the drama, Honda Motor Co. said that it will suspend production at most of its U.S. and Canadian factories this week after halting its Mexico plant last week.
"We continue to manage a number of supply chain issues related to the impact from COVID-19, congestion at various ports, the microchip shortage and severe winter weather," Honda spokesman Chris Abbruzzese said. "In some way, all of our auto plants in the U.S. and Canada will be impacted, with most of the plants temporarily suspending production during the week of March 22."
MULTIPLE CAUSES
The causes for the supplier shortages are old and new.
When the coronavirus pandemic hit last year and vehicle factories closed in a season of uncertainty, automotive manufacturers cut their orders from microchip producers. Electronics companies scooped up the available chip capacity for TVs, webcams and other goods for working and playing at home, analysts say.
Global competition for chip capacity is intense: The newest gaming consoles by Sony and Microsoft — released last year — are still out of stock.
The industry also has been coping with a shortage of shipping containers caused by the pandemic that is snarling the global movement of parts as basic as the plastic clips used to anchor vehicle floor mats.
More recently, the power grid crash caused by the severe February winter storm in Texas froze production of microchips as well as petroleum products used for seat foam and automotive coatings.
A resulting shortage of polypropylene has doubled the price of the material. Some plastics-related Tier 2 and Tier 3 suppliers have been down for two weeks or longer. And some told Automotive News last week that problems related to petroleum-based automotive resins, nylons, foams, fibers and plastics could stretch three to six more months.
"There isn't a supplier that hasn't been affected by the shipping delays, polypropylene shortage or microchip scarcity," one plastic parts supplier said.
In addition, the Feb. 13 earthquake in Fukushima, Japan, took some Japanese auto suppliers offline, reducing parts headed to Honda and Toyota in North America.
"Both companies had already scaled back the imports of parts to their U.S. operations in February, likely reflecting the well-flagged issues with semiconductor shortages," said a research note by Panjiva, a unit of S&P Global Market Intelligence. "Both may face additional challenges."
And late last week — making the dire situation even worse — one of the world's largest suppliers of microchips to the auto industry, Renesas Electronics Corp. of Japan, reported that a factory fire has halted production at one of its Japanese plants.
Impact on automakers
It was unclear to what degree the new shutdown might exacerbate already strained chip supplies in the weeks ahead. But even without the added problem, automakers said they are taking production hits.
Toyota said last week that supplier shortages will impact production of the Camry, Camry Hybrid, Avalon, Avalon Hybrid, RAV4 Hybrid, Tacoma and Corolla, and the Lexus ES 350 and ES 300h, at plants in the U.S. and Mexico.
Volvo Cars said in a statement that it is reducing production at its South Carolina plant that makes the S60 sedan for global markets. The automaker said it is taking proactive steps to stabilize its supplies.
"We expect the situation to remain volatile during Q2 and we have therefore decided to take action now to stabilize the situation and mitigate the impact on production," the company said. "This means that we have temporarily halted production in our S.C. plant but we will continue to work with our suppliers to ramp up component volumes as soon as possible."
Ford said last week it had canceled a Thursday evening shift and both Friday shifts at its Louisville Assembly Plant in Kentucky, where it builds the Ford Escape and Lincoln Corsair crossovers. Louisville Assembly has faced numerous disruptions because of the chip shortage.
Ford said output in Louisville would return to normal by Tuesday, March 23.
Ford has said that if the shortage persists through the first half of 2021, it could affect adjusted earnings before interest and taxes by between $1 billion and $2.5 billion. But the company also assured dealers that it will have "no negative impact" on the retail business.
Regarding the electronics modules temporarily being left off the F-150 and Edge, Ford said it will build and hold affected vehicles for a number of weeks, then ship them to dealerships once the missing modules are available and it can finish comprehensive quality checks. The modules needed for the affected vehicles are tied to basic vehicle functions, such as windshield wiper motors and infotainment features.
Nissan Motor Co. said it reduced output at North American plants late last week, with production resuming this week.
In Smyrna, Tenn., production of the Murano crossover was suspended, and weekend overtime to build the Rogue crossover, Maxima sedan and Leaf electric hatchback was canceled. Nissan also idled the Altima sedan line at the Canton, Miss., plant and cut weekend overtime for the NV van.
In Agascalientes, Mexico, output of Nissan's Versa subcompact sedan and Kicks compact crossover also were halted until Tuesday, March 23.
"We continue to work closely with our supplier partners to assess the impact of supply chain issues and minimize disruption for vehicle deliveries to our dealers and customers," Nissan spokesman Brian Brockman said.
The impact has been widespread, but not universal. Hyundai Motor America said that its plant in Montgomery, Ala., so far is operating normally.
"We continue to collaborate with our supplier partners, and so far we have been able to maintain a high level of production," said Randy Parker, senior vice president of sales.
Kia Motors America also said its Georgia plant, which makes the popular Telluride crossover, was staying the course.
"We are still maintaining normal operations. Watching it very closely still but have avoided any impact so far," Kia Motors Manufacturing Georgia said in an email.
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