General Motors and Ford Motor have been forced to temporarily idle or extend shutdowns at several of their plants in North America due to the shortage of chips in the Global Automotive Industry.
At GM, the plant closures have been ranging from a week or two to many weeks due to disruption in the supply of chips. Its plant in Missouri will restart production after a two-week shutdown.
At Ford, it had to temporarily shut down its Flat Rock Assembly plant in Michigan for a week and additional downtime for its plants in Illinois and Missouri. The production of the Ford Explorer, Lincoln Aviator SUV, Mustang, and Transit Van has been impacted.
Semiconductor chips are key components used widely in the features of infotainment, power trains, and braking systems of cars.
And with Covid 19 restrictions being relaxed with conditions, there has been an uptick in demand, which has highlighted the chip shortage further. Consulting firm AlixPartners estimates the chip shortage will cut $60.6 billion in revenue of the global automotive industry, this year.
Ford, which had already announced production cuts at six of its plants last week has now canceled overtime shifts at its Chicago Assembly Plant – where SUVs are manufactured, and its Kansas City Assembly plant for the manufacture of Vans. It would also cut the production at its Ohio Assembly, where it manufactures large trucks and chassis cabs, it said.
All this could reduce earnings of Ford by $1billion to $2.5 billion in 2021.
Without releasing any new guidance, the company said it “will provide an update on the financial impact of the semiconductor shortage” when it reports its first-quarter earnings on April 28.
“The Ford team continues to work to find solutions to the industry-wide global semiconductor shortage,” the company said in an emailed statement. “For instance, we are planning to operate more U.S. assembly plants during more weeks this summer than we have in more than 15 years so we can build our must-have vehicles for dealers and customers.”
The cost of the closures has been factored in the company’s forecast this year.
Its operating profit is expected to reduce by $1.5 billion to $2 billion this year.
“We continue to work closely with our supply base to find solutions for our suppliers’ semiconductor requirements and to mitigate the impact on GM,” GM said in an emailed statement. “Our intent is to make up as much production lost at these plants as possible.”
GM’s Spring Hill, Tennessee plant will be closed from Saturday till 23 April, as per a message received by CNBC from the United Auto Workers Union. The GMC Acadia, Cadillac XT5, and XT6 crossovers are manufactured at these plants.
In addition to that, GM said another crossover plant that produces the Chevrolet Traverse and Buick Enclave near Lansing, Michigan will be idled the week of April 19, and production of the Chevrolet Blazer at a plant in Mexico will also be canceled that week.
Downtime will be extended at GM plants in Kansas and Canada through mid-May. The Chevrolet Malibu Sedan, Equinox, and Cadillac XT4 are manufactured at these plants.
GM has also extended downtime at its Lansing plant, produce Chevrolet Camaro and Cadillac CT4 and CT5 by two weeks, extending till the first week of May.
Both GM and Ford have prioritized the production of assembly of high margin vehicles like full-size pickups while cutting production of cars and crossovers. GM CFO Paul Jacobson said last week he was “increasingly confident” the automaker would hit its earnings targets for the year despite the plant closures