While supply chain problems have eased since last year, auto manufacturers are still grappling with issues. In addition to microchips, companies have faced shortages of everything from raw materials to other electronic parts, leading to delays and plant stoppages.
Semiconductor supply has improved in recent months due to a drop in the demand for personal computers and other home electronics. However, a new set of challenges has arisen, which could introduce new delays and higher costs. These problems stem from persisting shortages due to competing demands for the same resources from other industries.
"For sectors where demand is still strong, we are still seeing issues of materials shortages, and these problems will take additional time to resolve," said Jason Miller, associate professor of logistics at Michigan State University's business school.
These resource demands are primarily due to the ramp-up of government spending on programs to rebuild infrastructure and manufacturing capabilities and increased military spending to support Ukraine in its conflict with Russia. This additional spending is leading to growth in the production of automobiles, machinery, defense, and non-residential construction.
Companies that make military weapons like the shoulder-fired Javelin and Stinger missiles used in Ukraine are awaiting U.S. funding. Once that funding is secured, they will scramble to source semiconductors and other hard-to-find electronic components, potentially upending supply chains again, disrupting production, and driving up manufacturing costs.
At the same time, increased government spending has led to increased demand for industrial machinery and farm equipment, keeping supplies of microchips low. According to Caterpillar's CEO Jim Umpleby, the company still competes with car makers for limited supplies. "It's gotten a bit better, but it's still not what it was pre-pandemic," said Umpleby.
Meanwhile, companies like Ford and General Motors have seen a gradual improvement in their supply chains but still expect short-term disruptions. Last week, GM reopened its Silao, Mexico, plant that manufactures the Chevrolet Silverado and GMC Sierra. Previously the plant halted production for over a week due to a lack of semiconductor availability. GM resolved the issue in the short term but is looking for ways to improve the long-term availability of microchips and critical materials.
