Ford’s chip shortage improves despite worrying headlines, CEO says

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Any chip shortage update that actually brings good news? Yes, it has finally arrived, thanks to none other than Ford CEO Jim Farley. According to him, things may look a bit bleak in the automotive landscape right now, but at Ford it’s been gradually improving since the second quarter.

Farley sat down with The reader for an interview and gave us some details on what’s going on when it comes to getting chips into cars these days. He hopes that things will return to normal in the coming months; however, he admits that while things are better, no one can say absolutely what the future holds. If the past 18 months have taught the auto industry anything, this is it.

[Editor’s note: The Drive recently interviewed Ford CEO Jim Farley, a full transcript of which can be found here. This is one of several accompanying stories we’re publishing to highlight the most newsworthy details from the conversation.]

Lately, there has been a lot of negative news regarding the chip shortage. Toyota, for example, has announced that it has cut its production forecast for the coming months by 40%, despite the Japanese automaker having a stockpile of semiconductors beforehand. Likewise, Stellantis, GM and others have issued statements detailing plant closures, vehicle dissatisfaction, and more.

It is into this grim environment that Farley steps in, offering a faint glimmer of hope to people whose potential new cars have been parked, incomplete, for months. Talk to The reader, he explained how the business is improving and describes the situation in more detail, even going so far as to get into the nitty-gritty of individual suppliers.

“First of all, the flea situation is improving,” Farley began. “It’s very opaque, because if you read the announcements about this declining production, or this plant inactive for two weeks, it’s hard to see. But for sure, our wholesale business is improving for this quarter. compared to the second trimester. ”

For context, Farley previously predicted the second quarter would be the worst for the automaker in terms of semiconductor supply. This appears to be true from what he is saying now.

The executive then zoomed in for more details, discussing a fire at a factory owned by one of the automaker’s suppliers, Renesas. He also mentioned how many of those factories are the only source of these components for the automaker, and that when they break down in countries like Malaysia, which is currently experiencing a wave of coronavirus infections, there is no literally has nowhere else to get them. “Nothing [in Malaysia] burnt out, “Farley said,” so once the work gets back they’ll start producing. “

The biggest hurdle, however, is the primary source of automotive semiconductors, located in Taiwan. The company, TSMC, supplies 80 to 90 percent of the auto and truck industry chips, as Farley explains. However, automotive applications represent “only about four percent” of global semiconductor use, according to the CEO of Ford. It’s a small part of the total business of the business, but it’s meant to be taken more seriously now. “They’ve absolutely ramped up production,” he explained, “So we’re seeing better uptime, but it’s [still] not about what we need. “

So the actual supply of chips is slowly improving, although Farley has also spoken about how automakers are structured which makes this situation worse for cars in particular. Just-in-time lean manufacturing works when you can control the supply of a component, he explained, but not when those supplies come from an outside company.

“When I talk to my counterpart at Cisco, who doesn’t have a manufacturing facility, the only control they have over their production is through the supply chain. They said, “Let me understand. time system for key electronic components? Did you not have buffer stock? The answer turned out to be yes. Unlike other companies outside of the auto industry, Ford and many others ordered exactly what they needed and nothing else. When the pot of chips ran dry, well, it was dry. “’Can’t you guys get it?’” Said Farley, speaking as a Cisco executive. “‘We were doing this and it was not working.'”

Having experienced this, Ford is now taking steps to rectify the situation, using its engineering expertise to use more standard chips and prepare for other possible shortages outside of semiconductors alone. “We have cameras, we have 5G communication modules, we have software, we have so many other things that mean we have to manage our supply chain differently than worrying about alternators and water pumps.” , said Farley. He also confirmed that in the case of the new F-150 Lightning, stocks are already being built to ensure everything is ready for extended production of this vehicle. “We are learning absolutely a lot and taking action immediately,” added Farley.

All of this is good news for the future of auto production, as well as car prices, but the CEO is making it clear that we are not out of the woods yet. “It’s very dynamic,” said Farley. For example, speaking about the situation in Malaysia, he said that Ford expects supply to drop, but actually goes up earlier than expected. “Even since we guided this, Malaysia has now arrived, and we never expected it. So who knows?” Much could change in the months to come, and the company needs to be on guard to adapt. Hopefully that means fewer trucks with $ 10,000 markups.

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