GM to Halt Production at Several North American Plants Due to Chip Shortage

GM to Halt Production at Several North American Plants Due to Chip Shortage

Affected vehicles include the Chevrolet Traverse and Cadillac SUV models XT5 and XT6

GM said Thursday three plants previously unaffected by semiconductor supply problems will be idled or have output reduced for one or two weeks.
GM said Thursday three plants previously unaffected by semiconductor supply problems will be idled or have output reduced for one or two weeks.

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, Michigan, 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. Psaki said.

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 Wards Intelligence.

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, Kansas, 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 contract.

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 spokesman for the company said.

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.

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