Ford considers a way to move unfinished models closer to customers.
The auto industry is in a world of hurt due to the global semiconductor chip shortage. In the U.S., some manufacturers are suffering more than others, with the shortage reducing the output of certain models by half or more. As a result, sales are plunging as partially finished vehicles await chips that may take months to arrive.
Automakers are looking at solutions to replenish dealer stock and satisfy consumer demand. One option is to send unfinished vehicles to dealerships, moving them closer to where customers can see them. Automotive News reported that possibility this week.
As it currently stands, manufacturers continue to build some models and fill lots near assembly plants with unfinished models. For instance, Ford is doing just that with its F-150 pickup trucks while mulling sending some to certain dealerships to have them complete the job.
Unfinished and the Assuming the Risks
Sending unfinished products out is fraught with risks.
First, the final assembly point transfers from the manufacturing plant to the dealership. Here, trained service people would receive and install the chips, readying each model for sale.
Second, only select dealerships would receive authorization to complete the work. This means dealers must allocate staff for training and seek reimbursement from Ford for the work. Those dealerships unable or unwilling to qualify for this possible program would be left without available inventory.
Third, there are legal hurdles that must be considered. Vehicles without chips installed are effectively undrivable as certain key systems are controlled by chips. Installing chips would make them drivable, but once they leave Ford’s hands and head to the dealership, do dealers assume liability? A wrongly installed chip might cause a problem. If it leads to an accident or vehicle trouble, you can certainly bet lawyers will have a field day.
Fourth, unfinished trucks are a financial burden dealers must consider. Inventory on dealer lots essentially pays “rent” to sit there, which includes costly insurance. Notably, dealerships rely on turning inventory to stay afloat. Thus, one more question remains: will Ford pay them for parking unfinished vehicles until the chips are installed?
Suffering Sales
With the semiconductor chip shortage a huge factor, Ford sales have suffered considerably. For June, retail sales fell 32.5 percent (total sales were off 26.9 percent). This compares to June 2020, when the nation was grappling with the COVID-19 pandemic and sales were already down considerably.
The F-Series is Ford’s cash cow, driving untold profits that undergird the company. In June, sales fell 29.9 percent. Again, that was not due to demand, rather to the chip shortage. Further, Ford has three new products that require attention – the Bronco Sport crossover, Mustang Mach-E electric vehicle, and the Bronco. Ford cannot afford to neglect vehicle launches during this turbulent time as marketing programs must move forward.
Costly Losses
The Ford Motor Company as well as other manufacturers will lose sales and money until the chip shortage ends. The shortage may extend through 2022, which means billions of dollars in sales are at stake.
While Ford and others are reducing assembly and idling some plants, production goes on. Yet, Ford estimates it will lose $2.5 billion and 1.1 million units of production this year, according to CNBC. Competing manufacturers are also losing and it couldn’t come at a worse time: consumer demand is strong.
Looking Ahead
How will the chip shortage end? And when? The answer to these questions isn’t certain. However, we may see some relief as the year wears on. At the same time, experts agree that trouble will continue through much of 2022. Canceling orders in 2020 due to the pandemic and the resultant overall uncertainty about the future has set the industry behind.
Surprisingly, it may not be the cutting-edge chip makers that save the day. Instead, according to IEEE Spectrum, older chips make up the difference, supplying a proper solution to a pressing problem.
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