Chip shortage forces Ford to cut production of cars and trucks again

Photo (c) Steve Raymer - Getty Images

Consumers increasingly see fewer choices and higher prices

The Ford Motor Company is significantly reducing its output at six North American assembly plants, the result of a persistent shortage of vital computer chips in the supply chain. The move may lead to fewer vehicles heading to dealer lots in the months ahead.

Some facilities will be closed entirely for up to three weeks. Others will operate normally at reduced capacity with little to no overtime. 

The plants targeted for the slowdown are in Illinois, Ohio, Kentucky, Michigan, Missouri, and Ontario, Canada. These locations produce a wide range of Ford vehicles, from F-150 pickups and vans to the Ford Explorer SUV and Ford Escape crossover.

Shortage caused by the pandemic

The ongoing chip shortage began soon after the start of the pandemic last year. When car sales came to a screeching halt, automakers canceled existing orders for chips, expecting their plants would remain closed for an extended period.

But dealers quickly changed to an online business model and sales rose, leaving automakers without some key parts to produce cars and trucks. Because of the long lead time required to manufacture computer chips, the shortage has dragged on.

Ford temporarily closed production lines at plants in Michigan and Missouri in February. In early March, General Motors announced that it was extending its plant shutdowns.

Cox Automotive reports that the cutback in production has reduced inventories of available new cars, giving consumers fewer choices while reducing dealer incentives. It predicts sales of new cars in the first quarter of this year were nearly 5 percent lower than the same period in 2019.

The company reports that the supply of cars and trucks at dealerships across the country this week is 2.67 million vehicles, down approximately 20,000 units from the prior week and the lowest point since mid-January. Supply is 21 percent lower than this time last year.

“Inventory acquisition is the number one priority for dealers,” said Jonathon Smoke, chief economist at Cox Automotive, in a presentation to reporters and analysts. 

Car prices continue to rise

With demand still strong and supplies falling, dealers are in the driver’s seat when negotiating with buyers. After peaking in late December, Cox Automotive reports that the average listing price of a new vehicle in March was 7 percent higher than in March 2020.

Rising prices and falling inventories of new cars have also had an effect on used car prices, pushing them higher. Reports show that used car prices increased every week during March.

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