GM Announced U.S. Production Halt Blaming Microchip Shortage. Is it Just a Good Excuse?

According to USAToday, General Motors (GM) will temporarily halt production of nearly all U.S. plants due to pandemic-related chip shortage. GM said its Arlington Assembly in Texas, where it makes its highly profitable full-size SUVs, will run regular production next week, along with Flint Assembly in Michigan, where it makes its heavy-duty pickups, Bowling Green Assembly in Kentucky, where it makes its Corvette, and a portion of Lansing Grand River Assembly in Michigan, where it will make some Chevrolet Camaro and Cadillac Blackwing cars.

GM is the latest “victim” of the raging microchip shortage, after similar moves were announced by Toyota (T), Tesla (TSLA), Volkswagen (VW), Ford (F, twice) and some other automobile makers around the world. Toyota, for example, announced shutdowns at 14 Japanese plants in September because of Covid's impact on suppliers, thereby cutting production by about 40%. Toyota said it was also closing plants elsewhere around the globe, with North American production likely to be reduced 40% to 60%. Also, yesterday Ford Motor said its U.S. sales of new cars last month declined by 33.1% from a year earlier due to an ongoing global shortage of semiconductor components. The Detroit automaker’s sales capped off a dismal month of U.S. auto sales in August, which plummeted to an adjusted selling rate of 13.09 million vehicles representing the worst performance since June 2020 and down from 2021’s peak of 18.5 million in April, according to auto data firm Motor Intelligence.

But the question is whether it is the microchip shortage – rather than the falling consumer demand – that is a real single reason global carmakers keep cutting their productions? August consumer car sales missed estimates badly. U.S. car sales–expressed as an annualized selling rate came in at 13.1 million for August, far below estimates for 14.5 million units. Therefore the expected spike in pricing after the supply bottleneck will have been cleared has limits. Morgan Stanley analysts raised the possibility of a sort of “buyers’ strike” due to bad pricing. Even before the semiconductors deficiency hysteria grasped all news headlines, new car sales substantially eased from annual average 18+ to annualized 17 million in the first half of 2021. That is down to about 14 million in the second half so far. Again, the main question is whether 3-4 million car gap is lost forever, or those deferred purchases will make up in 2022 and 2023.

The most likely answer lies in the own strategies of the classic manufacturers, i.e. in their honest answers whether they are willing to follow their high watermarks despite the rising popularity of electric vehicles. If they found in the semiconductor parts’ shortage simply a nice looking excuse of surrendering the fight then the resolution of the current supply crisis won’t improve their performances markedly, while their abilities to sustain the current elevated pricings will be limited.