Consultant Insight: Slight relief in auto inventories not enough to meet demand

Automotive manufacturer GM plans to increase vehicle deliveries to customers in the U.S. and Canada, but automobile inventories are unable to keep up with demand due to manufacturing parts shortages. While the U.S. government is taking notice of the supply chain weaknesses behind the current shortages, the recommended investments will take years to strengthen supply chains. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] According to a June 3 statement, GM is increasing production of various vehicles in Michigan and Missouri from mid-May through mid-July, depending on the facility, as it prioritizes semiconductor usage and streamlines production line efficiencies. "The global semiconductor shortage remains complex and very fluid, but the speed, agility, and commitment of our team, including our dealers, has helped us find creative ways to satisfy customers," said Phil Kienle, GM vice president for North America manufacturing and labor relations in the statement. As noted by the press release, GM production at certain manufacturing facilities in North America, Asia and South America will continue to be impacted by the global semiconductor shortage through June and July. As global semiconductor supply recovers, the company expects to implement similar actions in markets worldwide to resume production and increase deliveries to dealers through the second half of the year. Vehicle inventories at record lows Semiconductor shortages have impacted many industries besides the automotive industry, including consumer electronics, exercise equipment and more. Goldman Sachs found that the semiconductor shortage touches 169 industries in some way. However, the greatest impact has been on the automotive industry. During the early months of the COVID-19 pandemic, automobile sales dropped and with the additional impact from the pandemic, manufacturing facilities closed, resulting in a significant drop in semiconductor orders. Automobile sales have picked up since the early days of the pandemic. According to Cox Automotive, year-to-date through April, 17.3 million light vehicles were sold. As a result, inventory levels are low. "Supply is more than 40% below last year's levels, and many dealers have little inventory available," said Charlie Chesbrough, senior economist, Cox Automotive. Cox Automotive expects the tight inventory situation to remain throughout the summer and possibly for the rest of 2021. According to U.S. Bureau of Economic Analysis data, U.S. domestic automobile inventories are at their lowest point in at least ten years, reaching 254.8 thousand in April, the most recent available data. Recommendations but little action Relief for industries such as automotive that depend on semiconductors is not expected anytime soon. The U.S. government has taken notice of the shortage as well as other supply chain constraints. In February, U.S. President Joe Biden signed an executive order "to help create more resilient and secure supply chains for critical and essential goods," semiconductors among them. The result of Biden's order was a 250-page report published this week outlining numerous recommendations. The report notes that the U.S. share of global semiconductor production has dropped from 37% in 1990 to 12% today and is projected to decline further without a comprehensive U.S. strategy to support the industry. As such, the report’s authors recommend that "Congress support at least $50 billion in investments to advance domestic manufacturing of leading-edge semiconductors; expand capacity in mature node and memory production to support critical manufacturing, industrial, and defense applications; and promote research and development to ensure the next generation of semiconductors in developed and produced in the United States." Encouraging U.S. manufacturing investments is a great plan, but it will take years to turn it all into reality. Most U.S. semiconductor production was outsourced overseas years ago to help lower costs such as labor. But those days have come and gone and most of today's production is not as labor-intensive as it used to be. It will be a costly move for such U.S. semiconductor producers as Intel and Texas Instruments to move more of their production to the U.S., particularly considering the cost of machinery, robotics, technology and labor. Government assistance will likely be welcome, but it will quite possibly come at a price.

Consultant Insight: Slight relief in auto inventories not enough to meet demand

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