One tiny component wreaks havoc without end across the industry

As 2021 started, a few automakers acknowledged that an obscure supply chain inconvenience was disrupting some of their vehicle production schedules. Here and there, some factories were experiencing backlogs on deliveries of semiconductors, also referred to as microchips.

But in early 2021, the word "disruption" was almost becoming tiresome among automakers. A Texas blizzard or a Georgia parts plant fire might send component makers scrambling for workarounds. But microchip deliveries? Halting a roaring comeback of new-car sales? How ridiculous was that notion?

As serious as it sounded in those early weeks, the smart bet from around the industry was that it would only be serious for a few weeks, or at worst, a few months. Production forecasters at AutoForecast Solutions warned in February that the microchip delivery snarl might last into the second quarter of 2021, and estimated that as many as 1.3 million vehicles might get trimmed from factory schedules around the world before the situation was resolved. That scenario sounded extreme to many.

But big forces were in play. American consumers were not merely emerging from pandemic lockdown and returning to dealer showrooms in big numbers, they were buying new-generation vehicles, loaded with electronics. Automakers are now increasingly competing for semiconductor supplies against electronics makers and cellphone producers of enormous size and scale — which are facing booming demand themselves. And when the pandemic struck and automakers closed factories for the health emergency, automakers essentially gave up their place in line for chip allocations. Then as 2021 began and consumers clamored for new vehicles, the auto companies were wishing they hadn't. They now needed microchips, and there weren't enough.

Automakers considered ways of assembling vehicles with missing components, or recalculating product mixes to delete chip-heavy feature packages. Vehicle deliveries to retailers began to shrink. Popular models became hard to get, and retail prices rose predictably.

Nor would the situation go away.

By summer, auto companies were openly speculating that the supply crisis would last deep into 2022. In July, AutoForecast Solutions reported that more than 5.7 million vehicles had been reduced from global factory schedules as a result of the chip shortage and forecasted that the number could eventually reach 6.9 million in a worst-case scenario. Just one month later, AFS reported that the toll had already reached 6.9 million, and the new estimate for worst-case vehicle losses would be 8.1 million.

Automakers from Germany to China responded in various ways, but also in similar ways, doing the only thing they could do — temporarily suspending production until more chips are available.

Ford Motor Co. has been among the hardest hit by the global semiconductor shortage, but there are signs the worst of the crisis has passed.

The automaker was especially impacted when — purely by coincidence in the midst of the shortage — a fire knocked one of its critical chip suppliers, Renesas, offline in Japan this year. During the second quarter, a lack of chips cut Ford's planned production by roughly half, taking out about 700,000 vehicles. Most of its plants have faced significant downtime, including the sites that build profitable models such as the F-150 pickup and Explorer crossover.

Dealer inventory has dwindled as a result, with some retailers drawing on emergency funds to help commission-reliant salespeople make it through the sales slump.

Yet Ford raised its financial guidance at the end of the second quarter and said it expects sales to increase by about 30 percent in the back half of 2021 compared with the first. Roughly 60,000 to 70,000 unfinished vehicles are now sitting in storage lots around assembly plants waiting for chips and related components, although Ford said it hopes to work through a majority of those by the end of the quarter.

The automaker considered a plan to ship at least some of those unfinished vehicles to dealers, where service shop techs would finish them once chips were acquired. But the automaker has put those plans on ice, according to dealers briefed on the situation, and does not plan to implement them unless it faces serious production cuts this quarter.

CEO Jim Farley said Ford has started engaging more directly with chip fabrication plants and is providing suppliers with longer-term forecasts. Ford also is now dual-sourcing more parts and stockpiling certain components to prevent further financial damage.

GM has lost 777,928 vehicles globally because of the chip shortage this year, according to data from AFS. GM's production strategy has been to prioritize its fastest-turning and most-profitable segments: full-size pickups and SUVs. The automaker has adjusted production schedules almost weekly to direct chips to the right product lines.

GM also simplified the number of available vehicle configurations to reduce the need for select chips. As a result, GM built some 2021 pickups without a fuel management module.

But in late July, GM could no longer shield pickups from the effect of the shortage. The automaker began intermittently pausing production at its pickup plants in Flint, Mich.; Fort Wayne, Ind.; and Silao, Mexico.

At the same time, production of its lucrative full-size SUVs has continued to hum at Arlington Assembly in Texas throughout the crisis. By comparison, its crossover and sedan plants have gone through long spurts of downtime. Fairfax Assembly in Kansas City, Kan., which builds the Chevrolet Malibu and Cadillac XT4, has been down since Feb. 8. Production of the XT4 is scheduled to resume Sept. 20, but GM has not set a restart date for the Malibu. The automaker has cut 96,001 units of the Malibu so far.

On the retail side, GM dealers continue to cope with scarce inventory. Many have expanded their used-vehicle stock and even arranged sales of new vehicles before they arrive on the lot. GM launched two tools to help dealers plan ahead when lots are virtually empty. One software tool, focused on ordering, shows a dashboard that combines vehicle trim options with market data to help dealers ensure they're ordering the most in-demand vehicles for customers in their area. The other tool, VinView, allows dealers to track orders from the plant to their stores to keep customers updated on their vehicle's location and estimated delivery time.

Honda has been posting strong sales numbers this year despite chip shortages. The automaker is now in the middle of significant freshening of its lineup, from the redesigned Civic to the new-generation Acura MDX. In recent months, Honda has touted its ability to keep its North American factory lines running despite the pandemic and chip shortage, and all of the core Honda and Acura vehicles have posted year-over-year gains compared with pandemic-stricken 2020.

But Honda's chip optimism is over — at least in the short term.

U.S. retailers are now bracing for a big drop in vehicle deliveries to dealer lots this month as Honda blames the new situation on a resurgence of the coronavirus in Southeast Asia. American Honda declined to provide details about which models and factories would be affected, but a leaked dealer letter spelled out much of the production pain to come.

Honda said in the letter that it will prioritize North American production, but said it would "start shaving production on a number of models," starting in late August. That will mean a 40 percent overall reduction in the number of vehicles it expects to deliver in September.

The Honda brand is prioritizing its midsize crossovers. The plan means fewer Civic compact sedans and Accord midsize sedans, along with the HR-V subcompact crossover and CR-V compact crossover.

"Some models will be more impacted than others, as supplies of the Pilot and Passport are expected to remain steady," the letter said. It did not mention its freshened Ridgeline pickup as an immediate priority.

But Honda will move forward with the fall launch of the new-generation Civic hatchback, which is scheduled to go into production late this month. Although the hatchback sells in lower numbers than the Civic sedan, the automaker has moved hatchback production to the U.S. from Europe and had delayed the redesigned Civic significantly because of the 2020 COVID-19 outbreak.

The situation is likely similar at Acura. The redesigned TLX sedan and the new-gen MDX have posted the biggest year-over-year sale gains, and those are likely to remain priorities.

Hyundai has been running ahead of the chip shortage better than many automakers, but the parts scarcity is now catching up. After months of strong sales, dealers say they are starting to see dwindling vehicle inventories.

Hyundai's plant in Alabama suffered from limited production during the weeks of Aug. 16 and 23 as a result of semiconductor shortages, the company told Automotive News. Production was also suspended on Aug. 13 and 14, although Hyundai said it expected some improvement going into September, with resumption of full production at the end of August.

"Record sales and semiconductor shortages have reduced our inventory levels," the company said, citing months of sales records in the U.S. market over the spring and summer. "August may be our most challenging inventory month."

Hyundai said it was somewhat optimistic going into the fall.

"We expect the situation to gradually improve in the coming months," the company said. "Consumer demand for Hyundai vehicles remains high and we continue to gain significant market share."

Likewise, the Hyundai brand has launched the new Santa Cruz pickup in Alabama and expects Korean-built models of its new Ioniq 5 electric vehicle to go on sale in the U.S. as scheduled this year.

The company is taking proactive measures to replenish its chip inventory globally, such as looking for alternative sources. Locally, it is attempting to keep North American dealers informed of what vehicles are coming down the pipeline.

The chip shortage has interfered with production at Nissan Motor Co.'s two U.S. assembly plants, affecting the supply of several sedan models. Since January, Nissan and Infiniti have cut about 75,000 units of U.S. production as well as 65,000 in Mexico, according to AutoForecast Solutions data. Globally, Nissan has lost nearly 270,000 vehicles because of the chip shortage, and AFS forecasts the toll eventually could rise as high as 340,000.

Inconveniently for Nissan, the shortage is occurring in the middle of a badly needed product overhaul that is central to Nissan's efforts to revive its U.S. business. Production line halts in Smyrna, Tenn., and Canton, Miss., left U.S. retailers with a roughly 30-day vehicle supply, compared with the 50- to 65-day supply Nissan strives to maintain.

This year, Nissan U.S. sales boss Michael Colleran expressed optimism about a recovery from the chip crisis in the second half of the year. But that doesn't appear to be materializing. A coronavirus outbreak at a microchip factory in Malaysia forced Nissan to halt vehicle production at Smyrna for two weeks last month.

Nissan has prioritized its limited chip supply to protect high-volume models such as the Sentra, Rogue and Kicks, and launches of the Pathfinder and Infiniti QX60 crossovers and Nissan Frontier pickup. But other models such as the Murano crossover, Leaf electric hatchback, Maxima large sedan and midsize Altima sedan have suffered production cuts.

"It's a bit of a Rubik's Cube," Colleran said, referring to allocation decisions. "The chip industry can only produce so many chips."

The chip shortage came at an inopportune time for Stellantis, but the automaker has managed to keep its key launches on schedule. Stellantis has had to contend with this supply crisis as it revamps the popular Jeep brand.

The Grand Cherokee L, the nameplate's first three-row entry, arrived at dealerships on schedule this summer. That launch is being followed by the debut of the plush Wagoneer and Grand Wagoneer.

Stellantis has kept the lines moving at Warren Truck Assembly Plant in Michigan to meet the early demand for its pricey SUVs that begin trickling into dealerships soon.

While the Grand Wagoneer and Grand Cherokee L have been shielded from the shortage, other Stellantis plants that build models such as the Ram 1500 pickup, Grand Cherokee, Dodge Charger and Chrysler Pacifica haven't been as lucky. Ram 1500 production at the Sterling Heights Assembly Plant was down last week. The Belvidere Assembly Plant in Illinois, which builds the Jeep Cherokee, and the Windsor Assembly Plant in Ontario, which handles the Pacifica and Voyager minivans, were down last week and this week. The Brampton Assembly Plant in Ontario, which assembles the Dodge Challenger and Charger and Chrysler 300, was down last week.

Stellantis CEO Carlos Tavares said in July that he expects the chip shortage to drag into 2022, and said the automaker is now making "a certain number of decisions in terms of changing the diversity of conductors."

Jeep North America Vice President Jim Morrison said the supply chain team has been working around the clock sourcing chips.

"Even the engineering team has been adapting our Jeeps to work with different chips," Morrison said in July. "It has been a real task. It's come with a lot of hard work.

"Coming into 2021, we thought we were going to be coming out of the COVID fog and getting back to normal — so you never know what the world is going to throw at you."

Like most of their competitors, Subaru dealers don't have many new vehicles on their lots to sell right now, because of the global microchip shortage. But for Subaru dealers, that's a familiar situation — the automaker has dealt with low inventories for years. As a result, many Subaru dealers are adept at selling deep into their production pipeline.

The Japanese brand is continuing to expand its offerings in an attempt to keep more of its extremely loyal customers interested. Subaru began by adding new Wilderness trim levels to some of its bestselling crossovers to bolster their off-road image and make them more attuned to the brand's nature-centric marketing. And next year, Subaru plans to bring out its first EV, a crossover built by Toyota in Japan that will be called the Solterra. Selling an EV will be fresh ground for Subaru and its U.S. dealers to cover, and will require dealer investments to keep the Solterra and future EVs charged and serviced.

Tesla Inc. has not been immune to the effects of the semiconductor shortage, but the EV maker has managed to avoid the large-scale shutdowns experienced by its competitors. On the company's second-quarter earnings call, CEO Elon Musk noted the parts shortage had led Tesla to halt its assembly plants for an undisclosed amount of time and admitted the situation was "quite serious."

But Tesla was able to avoid the brunt of the crisis because its engineers spent weeks swapping in substitute chips and rewriting firmware to keep vehicles moving out of its plants. Those moves helped ensure record deliveries from April through June.

But Tesla still had to delay the launch of its highly anticipated Semi truck, citing global supply chain challenges, and Musk said Tesla's performance in the back half of the year will be dependent on its chip supply.

He said modules that control airbags and seat belts were in particularly short supply during the second quarter.

"It does seem like it's getting better," he said after the company posted record second-quarter profits. "But it's hard to predict."

After months of relying on what seemed like magic, duct tape and glue to avoid the worst of the COVID-19-induced microchip crisis and keep new vehicles coming to its U.S. dealers, Toyota Motor North America hit a wall last month and announced global production cuts.

The timing is not great for the Japanese automaker. Toyota is getting ready to launch its biggest product of the year, a redesigned Tundra that should at least be competitive again with pickups from the Detroit 3. As it scaled back production plans for Toyota and Lexus lines around the world, Toyota notably spared the San Antonio plant where it makes the Tacoma and Tundra.

The strategy should ensure that the first new Tundra in 14 years makes it to dealer lots, giving Toyota at least a small advantage against Ford, GM and Stellantis, which have had to hold back pickup production on their own chip woes.

But pickups aren't Toyota Motor North America's only concern right now. The automaker is getting ready to get into the EV fight next year with an electric crossover, the bZ4X, the first of several EVs that it will make in Japan for itself and Subaru. Toyota has been losing environmentally conscious consumers for years to Tesla. Whether Toyota is able to navigate the chip crisis and deliver a bZ4X that will bring back Prius owners of years past is an open question.

Volkswagen Group experienced a tough spring as its North American plants struggled to keep up production despite the chip shortages. But the automaker has been able to recover enough to launch a new crossover in the U.S., the Taos. Earlier in the year, VW planners were having to choose which mouths to feed when it came to its now all-important crossover lineup.

In Puebla, Mexico, the choice came down to the new less-expensive Taos or its line-mate, the just-refreshed Tiguan. They compete in the same segment. A similar decision had to be made at its plant in Chattanooga, where the three-row Atlas rides down the same line as its newer two-row derivative, the Atlas Cross Sport.

Flagging sedan sales helped soften the blow by allowing VW to shift its supply of chips to the crossovers. Volkswagen is ending sales of the Passat, which is built in Chattanooga, while chips from the Jetta could be redirected to its more-profitable crossovers in Puebla.

The worst of the shortage may be in the rearview mirror for VW, but the automaker might redirect chip allocations from North America to keep its European plants running as it launches a new stable of EVs across its many brands.

VW's U.S. sales have been resilient to the supply chain problem so far. Its 120,520 second-quarter sales were the highest for the company since 1973.

The chip shortage has tapped the brakes on Volvo Cars' market momentum.

This year, Volvo had to temporarily halt production across its network, including factory lines in Sweden, Belgium, the U.S. and China, to cope with the supply disruption.

According to AutoForecast Solutions, Volvo has trimmed an estimated 22,000 vehicles from its schedule worldwide so far because of production stoppages.

That tally could rise to as much as 29,000 before the crisis is over, AFS noted.

Last month, Volvo halted production at its Swedish plant near Gothenburg where it builds the XC60 and XC90 crossovers and V90 sedan. In June, production at Volvo's Belgian plant in Ghent was interrupted for a week. That plant builds the fast-selling XC40 and XC40 Recharge P8 crossovers.

Meanwhile, assembly of the S60 sedan at Volvo's U.S. assembly plant near Charleston, S.C., has been sporadically disrupted since March as a result of supply interruptions and reduced demand for the sedan.

Volvo had reported the best global sales and operating profit in the company's 94-year history for the first half of the year as demand for electrified vehicles grew.

But the automaker warned in July that the ongoing shortage of microchips would negatively impact its results in the second half.

"The base scenario that we have is that the chip shortage will not improve, which means our sales and revenue growth in the second half will be flat compared with the second half of 2020," Volvo CFO Björn Annwall told Automotive News Europe.

Reported by Vince Bond Jr., Laurence Iliff, Urvaksh Karkaria, Hannah Lutz, Michael Martinez and Larry P. Vellequette