Global supply chain shortfalls cut into northwest Ohio

·7 min read

May 1—Just for the record, Denny Amrhein, general manager of Grogan's Towne Chrysler Jeep Dodge Ram, wants all to know that the Toledo car dealership IS NOT going out of business.

However, he understands why some might think that.

On Friday, Grogan's Towne had just 27 vehicles for sale on its lot, instead of the usual 250 to 300. Its sister dealership, Charlie's Dodge Chrysler Jeep Ram in Maumee had 120, rather than the usual 400 to 500.

Meanwhile, in nearby Clyde, Ohio, Whirlpool Corp. is asking some of its 3,000 employees at its huge washing machine manufacturing plant to volunteer for a temporary layoff so that the appliance maker can realign its production schedules.

And at General Motors' Toledo Transmission plant on Alexis Road, 200 workers went on a two-week layoff on Monday after the automaker halted production of its nine-speed transmission to match a slowdown in the assembly of vehicles that use the component.

What all those places have in common is a growing problem that has been affecting the production of everything from smartphones to washers and refrigerators to cars and trucks.

A global shortage of semiconductors and other raw materials, like resin, is creating a bottleneck for an increasing number of manufacturers around the world. The problem initially was centered in the auto industry, wreaking havoc on its just-in-time assembly schedules.

But now it has spilled over into large and small appliances and electronics, making some models unavailable and forcing price increases on some that are in tight supply.

"There are a number of issues causing this," said Paul Hong, University of Toledo Distinguished Professor of Global Supply Chain Management.

The coronavirus pandemic began the problem with decreased demand for semiconductor chips, disrupting the base supply chain. As carmakers cut their orders, other chip users bought up available supplies.

As the U.S. economy has roared back, demand has begun to exceed supply and there are fewer chip makers available, Mr. Hong said.

"The chip shortage is just a temporary matter. But because there's no easy solution for supply to increase, it will take awhile to resolve," he said.

Meanwhile, automakers can assemble 99.5 percent of a vehicle. But without adequate semiconductors vehicles cannot be completed. "As a result, the whole (supply chain) doesn't work," Mr. Hong said.

"In real life, you can't have a product 99.5 percent complete and take it to the market," he added. "And the automakers are so dependent on a certain kind of chip that they can't find a substitute. Only certain chips work with electronics and autos."

Doug Kearns, vice president of Toledo's Yark Automotive Group, which includes 12 auto brands including Ford, which it recently added, said Yark like other dealers has been scrambling to obtain new vehicles to sell even though it just had one of its best sales months in March and April also is strong.

"Starting in April I had just a 31 days supply of new vehicles. And it's going to be something far less than that as we approach the beginning of this new month," Mr. Kearns said.

The chip shortage is impacting all auto companies equally, he added, with each reporting weekly that they are cutting production.

"One of our manufacturers said your May allocation will be 50 percent less than what it was in April and your June allocation will be 75 percent less," Mr. Kearns said.

"You start thinking about what that will do to your ability to sell once the inventory gets that diminished," he said, adding that there are no real solutions to the problem.

Yark Auto Group President John Yark said the one positive thing the chip shortage has done is identify a big flaw in the automakers' just-in-time production strategy.

"If you're going to manufacture with critical components, then you have got to have a supply on hand," Mr. Yark said. And that doesn't just apply to the auto industry, he added.

"I bought a new dishwasher a couple of months ago and that inventory is tight. Refrigerator inventory is tight," Mr. Yark said. "...I definitely think we need to relook at our supply chains."

In the meantime, how long it could take to resolve the issue is unknown.

Tony Totty, president of United Auto Workers Local 14, which represents workers at the Toledo Transmission plant, said GM assured workers that their layoff only will last two weeks.

"They're holding to those two weeks — but anything can happen. It's unfortunate and we're watching other facilities go down," he said.

On April 21, Whirlpool chairman and CEO Marc Bitzer spoke with Wall Street analysts about the corporation's first quarter earnings, and shed some light on issues causing havoc with supply chains.

First, the recent Texas winter storm had a big negative impact on production of petrochemical resins, Mr. Bitzer said.

The semiconductor issue, which already was a major headache in the fourth quarter of 2020 has only gotten worse, the CEO said. "...That semiconductor shortage was amplified also by, again, a little bit of the Texas winter storm, because there's one or two important factories for us. And you have a Japan fire, which also, unfortunately, impacts so. So you put ...a Covid constrained supply chain plus semiconductors plus resins against a strong consumer demand, it's a stress on the system," Mr. Bitzer said.

"And what it ultimately translates into [is] the back orders, unfortunately, will remain elevated for some time to come," possibly as late as the fourth quarter of 2021, he added.

Kenny Wanemacher, a manager at the Appliance Center in Maumee, said some appliance manufacturers have warned of possible price hikes in June on some popular products. Also, there already has been decreased availability of some special models of appliances.

"We've received some communication from some manufacturers that they're having some issues on special models because of the chip shortage. Basically what we're seeing from some manufacturers is they're reducing the breath of some of their model lines," Mr. Wannemacher said. "They are just sticking to the meat and potatoes of the lineup so they can keep producing."

Mr. Wannemacher said the Appliance Center anticipated a potential shortage and began buying up available inventory. It now has about $7 million worth of inventory in its warehouse.

"Our buyers were working through the middle of the night buying everything they could every day so that has built up our inventory. Still, there's not a lot of good news coming out of the manufacturers so you just have to keep buying what you can," he added.

Mr. Hong said it could take up to six months before the chip shortage eases but that won't erase the long-term problem.

Long term, the United States needs to re-establish its own chip-making base or convince chip makers in Asia, where the industry is now concentrated, to expand operations to American shores.

"We now realize that this is not only an industry problem, it's a national security issue. We cannot just have them bring supplies into the United States. We have to find a way to make them produce (chips) here in the United States," Mr. Hong said. "These chips are the diet for the future of our economy," he said.

What it will take, Mr. Hong said, is the American people and politicians mustering the political will to re-establish a chip-making industry in the U.S., which shouldn't be too hard a task, he added.

"We had Covid, but within one year there was successful funding to be able to develop vaccines. It could be the same way with the chip shortage," Mr. Hong said.

Mr. Yark agreed.

"We couldn't have been caught more flat-footed than we were with Covid. We didn't have PPE and thank goodness we were able to react the way we did and able to get a vaccine out to this country," Mr. Yark said.

"The United States needs to be smarter about things so that we're not always putting ourselves in a Plan B situation. We need to make sure we have our own chip production that we can count on."

Mr. Totty said General Motors had a chip production facility in Kokomo, Ind. but shut it down in 2017.

"Just from a military standpoint, why would we ever allow that to happen?" he said.

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