"Build-Shy" -- This Is An Incredibly Sad And An Incredibly "Scary" Tale -- May 22, 2021

Link to Yahoo!Finance, "Morning Brief," Andy Serwer.

It begins:

They sit parked in megalots all across North America — next to a big stone quarry in Troy, Missouri, by an auto assembly plant in Silao, Mexico, and filling the vast parking areas outside the Kentucky Motor Speedway near Owensboro. 

Tens of thousands of bright, shiny, never-been-driven Ford (F) and GM (GM) trucks and SUVs.

‌ They appear to be ride ready, but they aren’t. Buyers are lined up to buy them, but they can’t. The problem, as you might have guessed, is the vehicles have no chips.

‌ And so these cars and trucks wait in purgatory, more than $1 billion worth of them*, washed by the rain and glistening in the spring sun, a silent testament to the global chip shortage brought about by unprecedented COVID-19 conditions and some ill-advised decisions, as well.

‌ The pandemic of course forced thousands of small businesses around the world to close. It gut punched the airline, hotel and cruise ship businesses. Commercial real estate was socked too. At the same time, the likes of Zoom, Peloton, Big Tech and the rest of the stay-at-home economy went to the moon, as they say. Those trends and outcomes — both positive and negative — were pretty readily predicted and recognized by this time last year.

Few saw, however, what would happen to the semiconductor and auto industries. Before I get into what transpired and our path forward, a quick word or two about just how bad the situation is.

‌ How bad is it Andy?

‌So bad that if you are shopping for a pickup and looking for a specific make or model right now, forget it. You'll be lucky if the dealer has much of anything. Billionaire Jeff Gundlach recently told Yahoo Finance’s Julia LaRoche he wanted to buy a new truck but had to settle for a used one. “According to Gundlach, the truck he purchased had 8,000 miles on it, but was only $2,000 less than the sticker price of a brand new truck.” No deals for billionaires even. Used car prices, by the way, are soaring, up 10.0% in April and 21% over the last 12 months.

‌How bad is it? So bad that old-timers are scratching their heads. Usually the problem for a car dealer is too many cars and not enough customers. Now, it’s the opposite. Last Saturday I spoke with a dealer in New Jersey who’s been in the business for 40 years. (He wanted to remain anonymous so as not to get HQ peeved.) "When was the last time, you’ve seen a shortage of cars like this," I asked? “Never,” he told me shaking his head, “not even close.” That explains why a few minutes earlier the dealer’s eyes had lit up when I drove in to return my leased 2017 Escape. “I can use that car,” he had said hungrily.

‌How bad is it? So bad that GM is scrapping fuel-saving technology that requires chips on certain V8-powered Silverado and Sierra pickups. Meaning essentially that these trucks are devolving. So bad that Ford is cutting back and or halting production at eight assembly plants in North America that make Mustangs, Escapes, the popular new Bronco, oh and the F-150 pickup, the best selling vehicle in America. This of course on the heels of the rollout of its all-electric F-150, replete with a test drive by President Biden. (EVs need the same or more chips, in case you were wondering.) Ford now says the debacle will cost it some $2.5 billion in earnings this year.

‌So bad that workers at auto plants are being told to stay home and it’s maybe even affecting the economic recovery. I spoke with U.S. Commerce Secretary Gina Raimondo on Thursday and asked her if that was in fact the case.

‌“In part, yes, absolutely,” she told me. “If you just take the auto industry, which is obviously a very, very important industry with a lot of jobs, but just in that one industry, we have thousands of folks furloughed right now. And that's true in other industries as well. So yes, absolutely.” [Comment: "In part...." This suggests to me she is unaware how bad this is ....]

‌It’s so bad that it could end up costing the U.S. auto industry $110 billion, according to AlixPartners, an industry consulting group. So bad that Detroit has added a new phrase to the automaking lexicon, “build-shy,” which is when a carmaker builds a vehicle just shy of completion, (i.e., without the chips), to keep the factories working and jobs in place. (All those cars in those aforementioned lots are “built shy.”)

And that's just the beginning of a very, very long essay.

For some sectors and for some people, this may be worse than the 2020 Chinese pandemic. ‌

Perhaps I'm being a bit melodramatic, but this "chip" shortage scares me more than almost anything else.  

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