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GM’s Barra Offers More Detail On Future Strategy To Solve Chips Crisis

Jamie L. LaReau Detroit Free Press

WWR Article Summary (tl;dr) As Jamie L. LaReau reports, GM CEO MaryBarra says, "The global shortage of chips has forced GM to more closely study its supply chain beyond the "short-term" fix of just getting enough chips to keep plants running each week."

Detroit

General Motors will look to form strategic partnerships, including joint ventures and long-term agreements, with semiconductor chip makers as it tweaks its strategy to secure more chips, CEO Mary Barra said Tuesday.

Barra said the global shortage of chips has forced GM to more closely study its supply chain beyond the "short-term" fix of just getting enough chips to keep plants running each week.

"We're also looking at what can we do in the midterm and long term of either having strategic partnerships, in some cases joint ventures like we do with our battery cells, or just having longer term agreements," Barra said, referring to GM's joint venture with LG Chem called Ultium LLC. Ultium is the battery system that will underpin the 30 new electric vehicles GM will launch by 2025.

Since early this year, the auto industry has been faced with a severe shortage of car parts that use semiconductor chips. Demand for the chips surged during the COVID-19 pandemic when more people were buying personal electronics, which also use the chips.

GM and other automakers have had to either idle factories or build cars just shy of all the parts, park them and wait for the parts that contain chips to arrive to complete assembly on the cars. As a result, dealer lots are largely barren.

Barra has said the shortage could cost GM up to $2 billion in lost earnings this year.

GM buys "very few chips" directly from chipmakers, Barra said. But some newer GM vehicles will have up to 30% more chips. So GM is more closely looking at how it can better source chips for the parts it uses. Barra said GM is now "communicating far deeper" into the supply chain to work with those suppliers who do get the chips directly from chip manufacturers than it has previously.

"We’re reevaluating, and having direct relationships, with tier two, three and four suppliers to make sure we’re going to have a secure supply," Barra said.

Barra made the comments during part of the virtual conference, "Workday Conversations for a Changing World" with Fortune CEO Alan Murray. Workday specializes in software that helps in managing people. Earlier this month, Barra had said GM plans to make "substantial" changes in its supply chain to address the chips shortage, which she said might continue beyond the initial expectation that it would ease by the second half of the year.

A GM spokesman declined to comment beyond Barra's remarks Tuesday.

GM CFO Paul Jacobson recently told Wall Street analysts that GM's third-quarter wholesale vehicle deliveries would be down by 200,000 units rather than the initial projection of a 100,000-unit dip due to the chips shortage. But he said GM expects a "more stable year" in 2022 for semiconductor supplies. A report released last week by consulting firm AlixPartners said the chips crisis will cost the global auto industry $210 billion in revenues this year. That's almost double its estimate in May of $110 billion.

AlixPartners forecasts that automakers will lose production of 7.7 million vehicles this year. In May, it had forecast a production loss of 3.9 million.

Also on Tuesday, Ford Motor Co. CEO Jim Farley told Yahoo Finance the chip shortage will be an issue for the auto industry into 2022.

Distributed by Tribune Content Agency, LLC.

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