TORONTO – A semiconductor chip shortage has handicapped new-vehicle production and limited the types of models and accessories available.
Consumers looking for alternatives are getting sticker shock when they shop dealers’ used inventory.
In other words, there’s no escaping this pandemic either.
Dr. Peter Frise, director of the Centre for Automotive Research & Education at the University of Windsor told Canadian AutoWorld, “the average new vehicle has upwards of 100 chips, and many have lots more. They range in size from one-half the size of your fingernail to not much bigger than your thumb.”
A chip or microchip is also referred to as an integrated circuit or IC.
“There are many different kinds,” Frise added. “And they are not interchangeable. Each type is custom-designed for its application.”
The little fellows make the windows go up and down, run the wipers, the engine control unit (ECU) and the anti-lock brakes. The list goes on.
Automakers lack clout
Frise pointed out that there are only a few locations where ICs are manufactured, mostly in Asia. So, when the pandemic hit in April 2020 and auto production and sales ground to a halt, automakers cancelled or put their IC orders on hold. That’s when the chip makers turned elsewhere.
Frise said they didn’t have to look far. Homebound by the pandemic, consumers craved computers, printers, video games. All ran on ICs.
It didn’t take long for the chip makers to devote themselves to this new demand. So, when the auto industry production began to revive, the chip makers were too busy to respond to the automakers’ orders.
“It really boils down to the fact that the auto industry may be a huge industry but it doesn’t have the buying power of the entertainment industry and mobile communications industry that builds cell phones, laptops and gamer modules,” Frise added.
So, when auto factory production lines up started again, the automakers weren’t able to obtain adequate new supplies of ICs.
Dr. Frise is professor of Mechanical and Automotive Engineering and Director of the Centre for Automotive Research and Education at the University of Windsor. He holds degrees in Mechanical Engineering from Queen’s U. in Kingston, ON and Carleton U. in Ottawa. He has worked in the oil industry in West Africa, the tool and die industry and manufacturing sector in Canada and the U.S.
Frise founded Canada’s first automotive engineering program in 1998. In 2001, he founded and lead AUTO21, Canada’s largest research network focused on advanced automotive R&D collaborations between universities across the country and the auto sector.
No one escapes the famine
Frise noted that the chip makers only have limited capacity. They can’t switch back and forth from, say, iPhone chips to engine control units for Toyota. Nor can they add new manufacturing lines quickly.
Despite rumors to the contrary, Frise doubted that Toyota escaped the famine. “Toyota is renowned for being a careful and prudent planner, but it looks like they suffered some production losses like any of the other manufacturers.”
Toyota did decide to stockpile components after the 2011 great tsunami when production ground to a halt. But there are limits to stockpiling.
“The problem is these chips are redesigned regularly, so they can’t stockpile too far in advance because they would miss out on the latest technology by using old, stockpiled chips,” he said.
Single sourcing
Frise said that the automakers have a bad habit of single sourcing. The entire industry reportedly relied on a single Japanese plant that made almost all of a special pigment for car paint which was used to coat cars of certain colours. However, that plant was near the Fukushima Nuclear Plant, which was flooded out during the tsunami, and this same big wave damaged the pigment plant.
“So, when that plant was forced to close in 2011 for several months, you couldn’t buy a car in those colours – mainly black and certain shades of red,” Frise continued.
He recalled that some OEMs learned from the tsunami: Honda reportedly stopped relying on a single source for its ECUs when its single source in Malaya was flooded out in the same event.
But Frise said that industry would be wise to kick its addiction to relentless cost cutting. “That tends to drive the industry towards single solutions that give the best price. That’s fine as long as the supply is secure but if something goes wrong then everyone is in trouble and that’s what we are seeing right now with the shortage of ICs.”
He warned that it doesn’t take much to slice the slender supply line and send production into a tailspin. He pointed to the recent grounding of the huge container ship the Ever Given in the Suez Canal. The slicing of a vital supply line like the Suez can cause global chaos in manufacturing.
The future
Some vehicles like the Chevrolet Silverado and GMC Sierra are being delivered sans certain components of their fuel control systems, which could be retrofitted when the chips are available. But there will be production shortages of certain vehicle types because without the chips, the vehicles simply cannot be completed for sale.
Frise predicted sales losses in the tens of thousands and possibly the 100s of thousands across the industry. That could mean shortages and possibly the price hikes that go with them.
According to the GM Authority magazine, the Alliance of Automotive Innovation, a trade group representing the gamut of automakers from Ford and GM to Toyota, BMW and VW, is urging the U.S. government to provide funding to help build a secure supply chain.
Still, it’s not all gloom and doom, Frise does see light at the end of the tunnel with things back on track by the end of 2021 or the beginning of 2022. “On the bright side, I suspect what you may see is a rethink on the supply of these commodities. Companies will look carefully at where they buy and from whom. It could be a move toward more diverse and thus, more secure sourcing which will help to stabilize the market.”
But no quick fix
Ford CEO Jim Farley, GM CEO Mary Barra, reps from Stellantis and chip makers Intel, Samsung HP and others expressed their concerns about the shortage at a meeting with President Biden on Apr. 12.
According to Reuters, White House spokeswoman Jen Psaki said the White House meeting was not expected to immediately lead to a decision concerning the shortages.
The President had earlier announced plans to invest $50 billion in semiconductor manufacturing and research as part of his drive to rebuild U.S. manufacturing under a $2 trillion infrastructure plan.
This story first appeared in the June 2021 issue of Canadian AutoWorld Magazine.
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