By on September 24, 2021

Despite the occasional media report claiming that the semiconductor shortage is nearly over, reality looks quite a bit different. Some manufacturers have managed to temporarily stabilize supply chains, even though others have continued announcing work stoppages as they run out of chips. Wait times for the electronic components have also increased by about 61 percent since the beginning of 2021. Meanwhile, a recent Kelly Blue Book survey had 48 percent of respondents saying they were going to postpone buying a new automobile until shortages end, prices come down, and they can actually find the vehicles they’re looking for. But even those that were willing to buy now expressed a surprising level of acceptance to abandon brand loyalty or their preferred body style just to get a fairer deal on an automobile.

With the United States fairing worse than other regions in regard to chip availability, the White House has been under pressure to solve the problem all year. Thus far, government strategy has focused on encouraging investments for new semiconductor production. But there’s a new gambit being proposed that would invoke a Cold War-era national security law that would force manufacturers to furnish information pertaining to semiconductor supply lines and chip sales. 

The plan has already been put into action, though it’s technically voluntary at this time. According to Bloomberg, the U.S. Department of Commerce has asked companies to complete questionnaires within the next 45 days that offer a glimpse into their inventories and the status of their supply lines. Commerce Secretary Gina Raimondo made the announcement on Thursday, adding that she could soon make it mandatory by invoking the Defense Production Act (DPA) to force manufacturers to comply.

“What I told them is, ‘I don’t want to have to do anything compulsory but if they don’t comply, then they’ll leave me no choice,'” she said. “I said today we’re evaluating all of our options right now, all the tools. I hope not to go there but we need to see some progress and we definitely need compliance.”

That sort of undermines the whole voluntary angle the Commerce Department led with. But, if you’re surprised that the government is willing to perpetually force its will by now, I don’t really know what to tell you.

There is a long history of the DPA being used outside the confines of a wartime environment. Passed during the Korean War in 1950, the Department of Defense repeatedly used it to make sure the national infrastructure was robust enough to endure attacks. It was later used to build up new DOD-backed technologies. In 2011, President Barack Obama invoked the law to force telecommunication firms to provide information regarding their use of foreign-manufactured hardware and software. Donald Trump later used it in 2017 to categorize materials that would be essential to national security and then again as a way to ensure certain sectors of the economy (mostly food production) would remain open during COVID lockdowns.

Within two days of taking office, Joe Biden also invoked the Defense Production Act to increase the production of supplies related to the pandemic, mainly personal protective equipment. Two months later, he did it again. This time the goal was to make it easier for facilities to manufacture COVID vaccines. In September, his third use of the DPA occurred to increase the production of hoses so that the U.S. Forest Service could have more equipment to fight wildfires on the West Coast.

Now the White House is eyeballing the act as a way to monitor manufacturers. But it’s not entirely clear how Raimondo expects this to play out in regard to semiconductors or which companies this is going to apply to. Even though the automotive industry has been coping with chip shortages for months, it’s hardly the only business sector that utilizes them.

From Bloomberg:

U.S. officials have repeatedly emphasized that the private sector must step up and provide more transparency if the government is to successfully address the shortage.

The Commerce chief and National Economic Council Director Brian Deese held meetings with companies Thursday to stress that point again. Raimondo said the first session “went very well” and participants were “extremely constructive.”

The information request — and potential enforcement through DPA or other means — is necessary because there’s a lack of trust among companies in the supply chain, she said.

“There’s allegations of certain consuming companies buying two or three times what they need and stockpiling,” Raimondo said. “So suppliers say, ‘We can’t get a handle on an accurate demand signal because consumers are stockpiling, so we don’t know what the accurate demand is.’ Some consumers are saying ‘We can’t get straight answers from suppliers, how come I was told I could have X and now I’m being told I can only have half of X?'”

Ah-ha! So it’s the dirty damn manufacturers that are causing the problem by hoarding all the chips for themselves … or the suppliers who aren’t giving an accurate account of how many parts they’re moving around the planet. Perhaps both?

We know that the automotive industry hasn’t been hurting as badly as it might seem at a glance. While automotive production has remained heavily suppressed since the start of 2020, profits are still fairly healthy. Companies have managed to slash overhead by issuing rolling layoffs whenever they run out of chips and having more staff work from home. But they’ve also been able to focus on high-margin vehicles and ask more for them while demand has increased due to shortages. Though they do seem broadly supportive of the White House’s plan to check in on them, suggesting that widespread malfeasance and secret chip hoarding may not be the case.

The Alliance for Automotive Innovation, which represents just about every major manufacturer on the planet, said it appreciated the government wanting to be involved. Though it stopped short of endorsing the invoking the DPA and hinted that it had things handled.

“Leaders from the semiconductor and automotive industries are working diligently to resolve the global chip shortage as quickly and efficiently as possible and are working to strengthen transparency and resiliency in the automotive semiconductor supply chain,” John Bozzella, CEO of the alliance, stated on Thursday. “Today’s discussion was an important opportunity to continue efforts to improve the automotive semiconductor supply chain and set the foundation for mid- and long-term capacity solutions.”

For what it’s worth, Stellantis separately said it would happily comply with the government — making it an unlikely candidate for semiconductor stockpiling.

While the government looking into warehouses to count chips sounds like it might not make much of a difference, there are some real economic ramifications here. Assuming companies bought more than they needed in a mad panic, the market is likely to crash if the coming months result in their not being needed. This is also the kind of thing investors would like to know in advance, which gives the White House an added incentive to pull the trigger on the Defense Production Act. However, nobody can say whether or not getting the federal government more involved is the correct course of action. Based upon how most things have been handled over the last few months, your author has his doubts that the DPA semiconductor tally would even be used responsibly.

[Image: Orhan Cam/Shutterstock]

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52 Comments on “Automakers Accused of Chip Hoarding, U.S. Considers Defense Production Act...”


  • avatar
    C5 is Alive

    My inner Darwinist says kudos to any manufacturer – U.S., German, Korean, Japanese, even ChinCom – that was cunning enough to secure its own supply.

    We’re definitely past the tipping point as a society to where survival is paramount, and it’s not as though our own feckless government holds any moral high ground to dictate what might be “wrong” or right.

    • 0 avatar
      brn

      Understand what you’re saying, but one underlying premise of capitalism is equal access to resources. Hording goes against that.

      • 0 avatar
        C5 is Alive

        brn, at least in theory the manufacturers had equal access to secure these resources. Apparently only a few did.

        There also was no legal diktat before now that GM, for example, deliberately limit itself to protect Ford or Toyota. What you might consider hoarding could also be viewed as simply shrewd business sense.

      • 0 avatar
        Lou_BC

        “Hording goes against that”

        I disagree. Hording is completely capitalistic just like building monopolies.

        Anti-hording and sharing based upon need is by definition communist.

        • 0 avatar
          SoCalMikester

          better turn in your costco cards! theyve been known to be communist and just allow ONE toilet paper sale per day per member! they should allow people to buy whole PALLETS, take them outside and set up a TP booth.

          • 0 avatar
            Lou_BC

            @SoCalMikester – It is capitalistic to buy, hord and resell. It is communist to distribute based upon need.

            Governments exist (in theory) to ensure fair and equitable access to resources on a grand scale to benefit as many of its citizens as possible.

            In your example, one can say that Costco is being fair and equitable to their consumers but they are also being capitalistic. They are limiting competition by controlling product.

        • 0 avatar
          Greg Hamilton

          Shortages of goods only happen in capitalist countries.

          In communist countries, there is never a shortage of goods, only a surplus of people.

          • 0 avatar
            ToolGuy

            Russian family is watching the evening news – announcer say taxes on vodka will be going up.

            “This means there will be some major changes for our family, Comrades,” says the man.

            “You mean you will be drinking less?” asks his son.

            “Nyet,” says the father. “You will all be eating less.”

          • 0 avatar
            Lou_BC

            @Tool Guy – “You mean you will be drinking less?” asks his son.

            “Nyet,” says the father. “You will all be eating less.”

            That applies to many American and Canadian families. I’ve seen that sort of thing all too often in my career.

          • 0 avatar
            TimK

            @Greg H: “Shortages of goods only happen in capitalist countries.
            In communist countries, there is never a shortage of goods, only a surplus of people.”

            Lol — +1000!
            By the time the federal government completes its investigations and formulates a policy response, the chip “crisis” will be over.

      • 0 avatar
        Superdessucke

        The idea of capitalism is a competitive market will fulfill demand. But here, we apparently have to wait on the National Development and Reform Commission of the People’s Republic of China to release more chips, because we cannot build things for ourselves any longer, at least efficiently. What happened to Build Back Better?? Many voted for Biden for that reason.

    • 0 avatar
      CoastieLenn

      There are (often unenforced) laws against a monopoly.

  • avatar
    CoastieLenn

    Just out of curiosity, it seems that the last few presidents have used the DPA a couple times during their tenure- though our current President is eyeballing his FOURTH activation with less than 1 year in the seat. What are the laymen’s terms for the limitations of this law? What can it be used for, and where do those uses end? Is there a certain timeframe that any uses of the act need to be finished by, or is this one of those “once they open pandora’s box, there’s no need to close it”?

    On a business front, this DPA being swung around like a wet towel might legitimately be the scariest tool in the governments toolchest.

    • 0 avatar
      SCE to AUX

      Agreed on the overuse. Such a provision has its place, but not everything is a national emergency.

      • 0 avatar
        SoCalMikester

        fire hoses, vaccines, and chips are apparently important enough to do SOMETHING about… after 4 years of “not my fault, not my problem, gimme more money, F you i got mine”

        • 0 avatar
          CoastieLenn

          I’m not sure what any of that has to do with my question. I am making no implications about the validity of the uses thus far, I’m asking about the perceived methodology and legal grounds the government has to basically take control over private business at will.

          Please stop being so narrow and open your eyes to the bigger picture.

        • 0 avatar
          Lou_BC

          @SoCalMikester – I agree.
          Uncontrolled wildfires in multiple places around the globe put needed firefighting resources in short supply. One can’t wait for companies to “catch up”.
          You mention vaccines but there was a shortage of PPE, and medical equipment. That makes sense to ramp up supply against the backdrop of plague induced global demand.
          Chips are arguably less important since motor vehicles and personal electronics are a luxury not a “life or death” item.

          What’s the alternative? Biden standing in front of the Ren Cen throwing chips at GM executives like paper towels at hurricane victims?

  • avatar
    BSttac

    Never count on the US government to “fix” anything. There sole agenda is taking away any freedom or choice you once had. The government getting involved in business is disgusting and needs to stop. No good will come of it.

    • 0 avatar
      Chocolatedeath

      “Never count on the US government to “fix” anything. There sole agenda is taking away any freedom or choice you once had. Large Corporations getting involved in government is disgusting and needs to stop. No good will come of it.”

      There I fixed it for you. I do agree with you but we both know this is a two way street.

  • avatar
    SCE to AUX

    “U.S. officials have repeatedly emphasized that the private sector must step up and provide more transparency if the government is to successfully address the shortage.”

    I call double BS:
    – Why does the private sector need to provide more transparency?
    – Why does the government need to help*, while everyone knows it really can’t?

    *I suspect the root of this DPA consideration is that the mfrs came to the government with their hand out for help, as always. In turn, the government will demand more transparency.

    Government help is always a two-edged sword.

    • 0 avatar
      NormSV650

      When it effects GDP you’ll see the government getting involved.

    • 0 avatar
      fazalmajid

      The car makers need to provide more transparency because they’ve been lobbying the Federal government to put political pressure on Taiwan to have their chipmakers bump up US carmakers to the front of the line. The only reason why that is needed is because those carmakers panicked and cancelled their orders and forfeited their place in line. Chip fabs cost up to $20B, become obsolete in 5 years and have to be run continuously to return the investment, and there was plenty of demand for laptops, webcams, printers and other devices needed for Work From Home when each family member suddenly needed their own computer and a single shared family PC no longer cut it.

      It’s instructive that the No. 2 Taiwanese chip maker offered to build a new production line in a fab with free space if the car makers would make the $1B investment viable by making an equivalent firm purchase commitment. Crickets… I have zero sympathy for these chicken little car companies that want the Feds to bail them out of the consequences of their own incompetence and the accountability is overdue.

    • 0 avatar
      golden2husky

      …Government help is always a two-edged sword…

      Exactly as it should be. If help is needed, then something serious has gone wrong and before public resources are used to “fix it”, the gov’t needs to know what needs to fixed before committing those public resources.

  • avatar
    alan996

    Shades of Truman vs steel..

  • avatar
    EBFlex

    This entire administration needs to be thrown out like the garbage they are.

    Monitoring companies because they set themselves up to succeed vs others that were so stupid not to prepare and are now suffering because of it. This is insanity. It’s like demanding people get a rushed vaccine and forcing them out of a job and their homes if they don’t.

    The early bird gets the worm. If these companies choose to operate in such a shortsighted manner that’s on them. And crying to this disgusting administration is pathetic. Expecting them to fix anything is insanely stupid. President Sippy Cup and the absent cackling sea creature couldn’t fix a burned out lightbulb let alone a chip shortage that they don’t care about.

    If you’re that worried about not having chips, focus your energy on making your own chip plant. Or work with a chip maker to solve your issues. It’s not that hard.

  • avatar
    dwford

    It would be great if we had a coherent industrial policy in this country. We know we are headed towards electrification, but we have made no moves to ensure that we have our own supplies of the rare earth metals, the computer chips, solar panels, windmills. Nothing.

    Is the plan just to shut down fossil fuel based industries and outsource the new tech to China – killing millions more jobs?

    • 0 avatar
      ToolGuy

      Here’s some clarity from the top guy:

      “It’s like, you know, what we have with — and we’re making progress, but like what we’re doing with regard to making sure we have the computer chips to be able to keep as — in the vernacular — to keep — you know, build automobiles.”

      https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/09/24/remarks-by-president-biden-on-the-covid-19-response-and-the-vaccination-program-8/

      But like, seriously, your point is addressed here – like, you know, maybe:

      “I mean, I think, everybody was kind of surprised when I — I think if I had said to you — I may be dead wrong, but if I had said to you in, say, April that I was going to get all three major manufacturers of American automobiles saying they’re going to go electric, I doubt whether you thought I — that could be done.”

      “Well, we’re out here in the back lawn; they’ve all of a sudden figured it out. They’ve had a bit of an epiphany. And they’ve realized, “Whoa, wait a minute, man. China is investing billions of dollars. China is — they’re getting battery technology. We’re going to be — blah, blah. And this is going to happen anyway.””

      There may be some coherent policy behind the scenes somewhere.

  • avatar
    el scotto

    Well, most of the stuff written by Posky automatically goes to TL:DR lite. Manufacturers manufacture things. Vehicle manufacturers can’t get enough chips right now. Ford and I suppose other manufacturers have vehicles sitting and waiting for missing chips to be installed and are missing production quotas. This article is trying to say these same manufacturers are hoarding chips. Either they have the chips and make production quotas or they don’t have the chips and can’t meet production quotas. This isn’t that hard to determine. This is more complicated than ordering from Grub Hub.

    • 0 avatar
      Lou_BC

      @el scotto – That’s very true. Is there a car company at full production?

      There was a time when all of the car companies kept a large inventory of parts. LEAN/Just in Time manufacturing shifted the burden of inventory and shipping logistics to the suppliers. If supply chains remain unsettled they will go back to stockpiling needed assembly parts, chips included.

  • avatar

    Related: I read an article recently in Radio World about the chip shortage and how it was affecting electronics manufacturers. This was pertaining to the gear used in radio, TV broadcasting, sound reinforcement and the like – not microwaves, stereos, etc. The general thought was supplies were down significantly, wait times for chips increased dramatically and costs for chips showing the same increase. Lead times have also increased by a large amount. One manufacturer mentioned a particular chip used in their line went from $14 per chip to $61. Most manufacturers stated that, for now, they will not pass along this price increase to the industry, but they will not be able to do so indefinitely.

    I would agree with the sentiment that the government is the last entity any one needs to ‘help out’. The stupidity of the Afghanistan pull out illustrates their ineptitude quite well.

  • avatar
    Jeff S

    How about the Government and the Auto Industry agree that there is a chip
    shortage and that certain features on vehicles be suspended until there is no longer a chip shortage. Start with stop start start, lane departure, automatic braking, and the future requirement of disabling a vehicle for those of us who might have had too much to drink–let those who are arrested for driving under the influence pay for their own device. If this chip shortage is critical then there needs to be a priority on what is necessary on vehicles. Let’s start with reducing the amount of chips used in vehicles.

    • 0 avatar
      mcs

      @JeffS: Some manufacturers have already been reducing their chip count to cut costs using custom logic. You could let some of the manufacturers that haven’t done that eliminate some features, but then they end up at a competitive disadvantage.

      At Harvard Business School, they taught us using case studies. Here’s a company that’s being proactive about solving chip supply problems and how they are doing it. Wonder why Tesla doesn’t seem to be impacted by the chip shortage as badly as other manufacturers?

      https://www.teslarati.com/tesla-samsung-17b-chip-plant-giga-texas/

      https://asia.nikkei.com/Spotlight/Most-read-in-2020/Tesla-teardown-finds-electronics-6-years-ahead-of-Toyota-and-VW

      https://www.theverge.com/2021/7/26/22595060/tesla-chip-shortage-software-rewriting-ev-processor

      • 0 avatar

        No, that’s wrong, that cannot be true. Tesla are bunch of republican idiots from Silicon Valley (now Texas) who don’t know how to build car (or rocket for that matter). Making everything in house is 100 years old concept. So in 2025 VW and Toyota will victoriously come up with the new solid-state battery and beat Tesla into submission.

  • avatar
    Daniel J

    Let’s not mention how environmentally unfriendly it is to manufacture chips. It’s so expensive here partly due to regulations.

    I just don’t really care anyone stock piling as I’m not sure these chip manufactures lead time is so far out.

    Keep in mind car companies cancelled ordered because the incorrectly made a bet in the retraction of car buying. Companies making those chips shifted to consumer goods.

  • avatar
    Jeff S

    @mcs–I seriously doubt that most of us will need a breathalyzer put in our vehicles and the stop start function. I would say if you took a poll among most of the public especially the readers of this site most would pay extra to have the stop start function disabled on ICE vehicles and many of the other electronic nannies. We have reached the point of diminishing returns on how much we can add to vehicles and still have them reliable and affordable. The problem with much of industry today and especially the auto industry is there are too many Harvard MBAs in running most corporations and not enough engineers and technical people that know anything about the product their companies make and sell. The chip shortage will not be solved overnight so measures have to be taken to reduce chip usage in the meantime. As for competitive advantage of one manufacturer over another with more features as of now that is not as much of an issue as the shortage of new vehicles available versus the demand for new vehicles which is much larger. Waiting 6 months to a year for a new vehicle is not an option for most. Until the shortages of chips are over more drastic measures need to be taken and if a few less features are available then most of us can adjust.

  • avatar
    wjtinfwb

    Yeah, the feds argument makes a lot of sense… Ford is hoarding chips because they are also hoarding 70k unfinished F-150s awaiting chips. Those parked trucks are a liability on Ford’s balance sheet and will be until they are delivered and sold to the dealers. Pretty sure GM is doing the exact same thing, as is Nissan, Toyota, etc. That crackerjack Biden administration has solved another major issue. An insanely incompetent bunch of total jackasses.

  • avatar
    Jeff S

    Those Ford trucks at Kentucky Speedway which numbered in the thousands are now gone and have been sent back to the Louisville plant to be inspected and have the missing chips installed. Kentucky Speedway also had thousands of Amazon trailers parked filled with returned merchandise and they are gone as well. KY Speedways was charging rent to both Ford and Amazon for the space used and to defray the cost of not having any NASCAR races which were mainly truck races.

  • avatar
    Jeff S

    Yes, you should have seen all the trucks parked and Amazon trailers, pictures don’t give you a real sense of the numbers especially when you see how large the parking area at the speedway is. The speedway is about a 1 hour drive from Louisville.

  • avatar
    Socrates77

    The world is shrinking, only idiots think the capitalism is the way to go. Tge time for competition has ended and the time for cooperation is here. There’s only one planet earth and 8 billion people better learn to share. Socialism is inevitable, weather you like it or not. Selfishness can only doomed the survival of the species. Capitalism creates recessions because of greed.

    • 0 avatar
      TimK

      “There’s only one planet earth and 8 billion people better learn to share.”

      So to prove your sincerity for this just cause you’ll gladly post your bank account information here — in the spirit of sharing and cooperation. Lol

  • avatar
    Sid SB

    If these companies are storing chips, that is a questionable move because that tech is moving fast. I would they are likely to sitting on spare parts for current cars rather than chips that will them to compete in the future car market?

  • avatar
    Jeff S

    I don’t have faith that people will share. Ideally we should share but human nature being the way it is there are plenty of greedy and selfish narcissistic people out there. The more I am around people the more I like animals.

  • avatar
    Chocolatedeath

    There is no shortage. I have chips twice a week for lunch and my prices have not gone up..

  • avatar
    andyinsdca

    I see no mentions of China strangling chip production here. They’re reducing/cutting off power to all sorts of companies, like Foxconn and others which is causing all kinds of chaos in the chip supply chain. Fedgov can beat up Tesla or Ford all they want, it won’t fix the issue.

  • avatar
    Jeff S

    If a manufacturer doesn’t want to share their chips all they have to say is nacho chips.

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