US car industry leads the world in production cuts over chip shortages

Car crunch bites, but relief looks likely

As the chip shortage rolls on, automakers are still hitting the brakes on production, cutting 180,000 vehicles from production worldwide this week alone.

Nearly 100,400 of them are being eliminated from plants in North America, Automotive News reported, based on data from AutoForecast Solutions (AFS). This week's production cuts are the largest recently reported by AFS. 

According to the data, nearly three million vehicles have been cut from global production schedules in 2022, with projections pointing to a 3.8 million cut by the year's end. Of the vehicles no long being produced 1.06 million have been cut from North American production lines, 1.04 million from Europe and just 131,500 in China. 

That's a lot of vehicles, but nowhere near the number cut last year, when 11.3 million were canceled due to the chip shortage.

To combat semiconductor scarcity, some automakers have opted to sell vehicles with IOUs in place of chips - both GM and Ford have shipped vehicles missing HVAC chips, heated seat controls and other conveniences that aren't necessary to get the vehicle on the road. 

That tactic isn't sustainable, AFS CEO Joseph McCabe told The Register, who said it's not a strategy automakers want to adopt for every vehicle. 

The alternative, McCabe said, is equally unappealing. "When it comes to producing vehicles at near 100 percent which will sit waiting for a chip before shipping to dealers, this is a costly process," McCabe said in an email. 

US auto manufacturers faced that very situation last year when thousands of vehicles, complete but for their chips, were left sitting in storage lots. GM, which took to selling the partially-chipped cars, still had 95,000 unfinished vehicles sitting idle as of early July. 

Asked whether the change from selling incomplete vehicles to canceling production indicated a shift in the types of chips available, McCabe said that wasn't the case. Instead, automakers were simply avoiding the costs associated with stockpiling unfinished cars. 

"We are not seeing a change in the type of chip available," he opined. 

The actual end of the chip shortage remains uncertain, with some analysts suggesting 2023, while at least one auto company - Volkswagen - saying it doesn't expect problems to be resolved until 2024 at the earliest.

While no one is cheering for the effects of inflation, it may prove to be an unexpected life preserver for the automotive industry. In an email to the Automotive Times, AFS director of vehicle forecasting Josh Shastal said that a global economic slowdown could improve semiconductor availability.

Given the semiconductor shortage's close association with the recent state of the world economy, an inflation-triggered drop in demand might be just what chip-heavy industries need to get inventories filled faster. ®