Automakers getting creative to navigate global chip shortage

Hot consumer demand for new vehicles is not waiting for automakers and their parts suppliers to obtain adequate deliveries of the missing microchips they need. And automakers are responding by creatively steering around the shortage.

That includes altering product mixes and feature packages to permit assembly lines to keep rolling toward dealerships.

"We're in close communication with our customer on a daily basis and making necessary adjustments and even substituting product where we need to continue to supply going forward," David Dauch, CEO of American Axle & Manufacturing Inc., said last week in an Automotive News Congress Conversations webcast. "But it's certainly a challenge."

With the microchip shortage now stretching into its fifth month — and getting worse, many believe — manufacturers are varying from their own production forecasts and schedules. In some cases, that is leaving suppliers unsure of how to keep moving or how to plan, said Akshay Singh, industrial and automotive principal at PwC.

"One of the biggest issues I'm hearing from our clients is that they really don't know how long this issue is going to last," Singh said in the same webcast, "and so whether to actually believe the releases they are receiving from the OEM or not."

The situation is a global case study in how to keep operating under emergency conditions — even as automakers racked up the best April U.S. new-vehicle sales tally in history.

How are they doing it?

Nissan is leaving navigation systems out of thousands of vehicles that typically would have them, cutting the number of vehicles with pre-installed navigation systems by about a third, according to a person familiar with the matter.

Ram no longer offers its 1500 pickups with a standard "intelligent" rearview mirror that monitors for blind spots. Renault has stopped offering an oversized digital screen behind the steering wheel on its Arkana crossover — also to save on chips.

Peugeot is going back to old-fashioned analog speedometers for its 308 hatchbacks, rather than use digital versions that need hard-to-find chips.

General Motors recently said it built some Chevrolet Silverado pickups without a certain fuel-economy module, costing drivers about 1 mpg.

In at least one case, automakers are asking a major chipmaker to send microcontrollers that do not meet standard specifications, a person familiar with the matter said. Those substandard chips would not jeopardize safety essentials, such as brakes, the person said, but they could mean in-car entertainment or emissions monitoring systems are more likely to malfunction in extreme weather.

Automakers and suppliers can accept whatever chips are available and rewrite the software to give them a new task, said Sig Huber, a consultant at Conway MacKenzie and a former head of purchasing at Fiat Chrysler Automobiles. Tesla said last week it alleviated issues by reaching out to new semiconductor suppliers and then quickly writing new firmware for those chips.

Stellantis is working on more standardization across its vehicle lineup rather than having to use specific chips for some models, CFO Richard Palmer said on a call with reporters last week.

"More standardization and flexibility — which is key when we have supply constraints," he said. "We are managing scarcity."

Automakers are also stocking incomplete cars, or "building shy" in industry parlance, to keep production lines humming.

In Hamtramck, Mich., near Detroit, an area stretching several blocks is filled with Ford F-150 pickups without some chips. General Motors said it is also storing unfinished vehicles while awaiting semiconductors.

Meanwhile, behind the scenes, suppliers are going to unusual lengths to try to secure chips. Stellantis partner JVIS-USA tried to sue NXP Semiconductors in a Michigan court in April in an attempt to get more chips, but a judge rejected its request.

Visteon flagged that automakers may seek compensation because of the shortages.

In Japan, Toyota President Akio Toyoda visited a Renesas plant that had suffered a fire to hasten its return to production.

But no relief is in sight, with even Apple, whose high-specification iPhones and aggressive demands typically place it at the front of the chip-customer line, saying it is starting to feel the pinch. Apple's demand could leave automakers wanting even when chip manufacturers eventually manage to increase capacity.

"This has the potential to be a longer-term issue," said Anna-Marie Baisden, an automotive analyst at Fitch Solutions. "This will only be exacerbated as vehicles become technologically advanced and use more chips."