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Ford says new vehicle production will fall by 50% in the second quarter

The company stated that the chip shortage affecting the auto industry is getting worse

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Photo (c) RiverNorthPhotography - Getty Images
The computer chip shortage that has existed since early in the coronavirus (COVID-19) pandemic has finally created a vehicle shortage. Just ask the Ford Motor Company.

In reporting its first-quarter earnings, Ford showed strong sales but warned that those numbers would fall in the current quarter because it doesn’t have enough chips. As a result, the automaker warned that its vehicle production in the second quarter would be reduced by 50%. Output was down 17% in the first quarter.

“There are more whitewater moments ahead for us that we have to navigate,” Ford CEO Jim Farley said during the company’s earnings call. “The semiconductor shortage and the impact to production will get worse before it gets better.”

That means consumers who want to buy a new Ford car or truck will likely face fewer choices and higher prices. Ford CFO John Lawler said the company expects 1.1 million fewer Fords will roll off the assembly line in 2021.

Ford stated that it has shelved plans to produce additional cars in trucks in some instances. In other cases, the vehicles are mostly complete but are warehoused as they await semiconductors to make them operational.

‘Low inventory warning light’

Cox Automotive reports that the “low-inventory warning light is flashing bright red,” but consumers are still buying what’s available on dealer lots.

"The robust retail sales pace is the story for the industry right now," said Cox Automotive Senior Economist Charlie Chesbrough.

But it may not last. In its sales forecast for April, Cox predicts that auto sales will have dipped slightly from March’s surprise increase. But if other automakers are facing Ford’s challenges, sales could fall in the months ahead. That means consumers searching for bargains aren’t likely to find them.

The chip shortage is the result of extreme caution on the part of the auto industry early in the pandemic. Forecasters predicted that new car sales would plunge, so car companies canceled their chip orders. Instead, the industry adapted to online sales and contactless test drives to keep sales strong, especially among consumers who had relied on ridesharing services before the pandemic and decided they needed personal transportation.

Other automakers have been affected

Ford is not the only automaker whose output is being limited by the chip shortage. Earlier this year, both Ford and General Motors announced production cuts at their factories around the world. GM followed suit in early April with an announcement that it would halt or slow production at facilities in several locations across the country.

For consumers, that may mean driving their current vehicle a while longer. As inventories continue to tighten over the summer, dealers will be less inclined to negotiate. By the end of 2021, when the chip shortage is expected to end, inventories could surge, along with incentives for buyers.

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