General Motors Corp (NYSE:GM) and Ford Motor (NYSE:F) have announced that they will extend shutdowns or temporarily idle various plants in North America because of the ongoing chip shortage that has affected the global automobile industry.
Global chip shortage affecting automobile makers
The temporary closures for General Motors will last from a week to several weeks for plants that have been idle because of semiconductor chip disruption. After two weeks shutdown at the Missouri factory due to parts shortage, GM will now commence midsized pickups production from Monday.
On the other hand, Ford’s updated plans will see more downtime at two plants in Missouri and Illinois in the coming week with temporary closure of the Michigan Fiat Rock Assembly plant for a week from Monday. The vehicle productions impacted include Ford Mustang, Lincoln Aviator SUVs, Ford Explorer, and Transit Vans.
It is vital to note that semiconductor chips are critical components of braking systems, infotainment, and power steering. The shutdown last year of multiple plans because of COVID-19 result in suppliers directing semiconductors from auto manufacturers to other sectors. This created a shortage as consumer demand rebounded stronger than anticipated. According to consulting company AlixPartners, chip disruption will result in a $60.6 billion revenue cut from the automobile sector this year.
Ford expects the shortage to lower earnings by up to $2.5 billion
Last week, Ford announced production cuts at six of its factors that include plants that produced the famous F-150 pickup. Ford had previously canceled overtime shifts at its Chicago plants that produce SUVs and the Kansas City factory for van manufacture, but it was yet to shut down production. Similarly, the company says it will cut production at the Ohio Assembly plant, manufacturing chassis cabs and large trucks.
The company had indicated that it expects the chip shortage to lower its earnings by $1-$2.5 billion this year. Ford will update how the chip shortage has impacted its finances when it reports its first-quarter earnings at the end of this month.