By Mike Colias
General Motors Co. will halt production at several North
American factories and extend shutdowns at others because of a chip
shortage that has been worsening for U.S. auto giants and poses a
threat to a strong sales rebound.
GM said Thursday that three plants previously unaffected by
semiconductor supply problems will be idled or have output reduced
for one or two weeks, including a factory in Tennessee and another
in Michigan that make popular midsize sport-utility vehicles.
Models affected include the Chevrolet Traverse SUV and the Cadillac
XT5 and XT6 SUVs.
The moves follow news last week that Ford Motor Co. would deepen
production cuts in North America, including idling for two weeks a
factory near its headquarters in Dearborn, Mich., that makes the
F-150 pickup truck, its biggest moneymaker.
Auto makers since late last year have been grappling with a
shortage of semiconductor chips, which go into software modules
used to control everything from brakes to dashboard touch screens.
The companies have been cutting production for months as they move
to line up chip supplies, with executives saying the shortage could
last several more months.
The chip shortage, also affecting products such as videogames,
is among a number of factors hobbling global commerce in recent
months, including backups at California ports, plant closures due
to the Texas freeze in February and the ship stuck in the Suez
Canal last month.
The chip bottleneck has crimped production at virtually every
major car company in recent months, including Toyota Motor Corp.,
Volkswagen AG, Honda Motor Co. and Stellantis NV.
President Biden has ordered a supply-chain review and met with a
bipartisan group of lawmakers to address the issue, White House
press secretary Jen Psaki said Thursday. Next week, top
administration officials are expected to meet with chip
manufacturers to discuss what might be done.
"We fully recognize that this is an issue that is impacting
industries across the country, including the auto industry," Ms.
The problem contrasts with other positives for the auto
industry. Continued low interest rates, a fresh round of federal
stimulus and pent-up demand have been drawing shoppers to
dealerships in large numbers despite economic disruption from the
Covid-19 pandemic, dealers have said.
The pace of U.S. vehicle sales in March leapt to its
second-highest level ever for that month, the National Automobile
Dealers Association said Thursday. That is despite the shriveling
discounts available amid tight inventories caused largely by
chip-related production problems. The average new-vehicle incentive
fell nearly $1,000 last month compared with a year earlier, to
about $3,500, the association said.
Mike Stanford, who owns Ford and Lincoln dealerships in
southeast Michigan, said customers have been willing to pay more
partly because they are getting more for their used vehicles,
prices of which have hit record highs recently. He said business
has picked up as Covid-19 restrictions ease.
"Customer sentiment has improved," he said. "I think people are
getting more confident."
But fallout from the chip shortage is worsening the strain on
vehicle selection and is likely to erode sales later this spring,
the dealer association said. The number of vehicles on dealership
lots or en route to stores fell 10% to about 2.4 million by the end
of March compared with a month earlier, according to research firm
While sales have held up so far, the cuts to factory output are
hurting the bottom line at car companies, which book revenue when
vehicles leave the factory. GM has estimated the chip shortage
could hurt pretax profit by as much as $2 billion this year. Ford
has said its hit could be $2.5 billion.
So far, the companies' stock prices have outperformed the
broader market despite the looming financial hit. That is partly
because investors are looking beyond the near-term results to the
growth prospects for electric vehicles and other nascent businesses
that auto makers are rolling out, RBC Capital analyst Joseph Spak
said in an investor note Wednesday.
Shares of GM and Ford have risen more than 40% this year,
compared with a 9% increase for the S&P 500. GM closed about
1.2% lower at $60.09 on Thursday.
GM also will extend closures of a factory near Kansas City,
Kan., and a plant in Ontario, Canada, until May 10. Both facilities
have been closed since February as GM diverts chips from less
popular models to large pickup trucks and SUVs, its biggest profit
producers. CNBC earlier reported GM's latest closures.
This year's production cuts have prompted temporary layoffs of
thousands of factory workers at GM, Ford and Stellantis who are
represented by the United Auto Workers. In addition to unemployment
aid, those workers get supplemental pay under the union's labor
Meanwhile, GM said it would resume production April 12 at a
Missouri factory that makes midsize pickup trucks and has been
idled for two weeks due to the chip shortage.
"GM continues to leverage every available semiconductor to build
and ship our most popular and in-demand products," a company
The seeds of the auto industry's chip shortage were planted last
spring, when auto makers and suppliers cut their production
schedules as the pandemic clouded the outlook for vehicle sales.
When demand picked up, so did the need for chips.
Meanwhile, chip producers have been scrambling to keep pace with
strong demand from makers of laptops, gaming systems and other
electronic devices that have been in high demand, limiting the
supply of automotive chips.
--Alex Leary contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
April 08, 2021 17:22 ET (21:22 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.