Apr 26, 2021
A recent court case about microchip supply exposed the crazy world of auto industry subcontracting.
The big automotive companies like Ford, GM, and Chrysler (now Stellantis) have created ever more layers of contractors in their never ending demand for cheaper labor, down to absolute rock bottom. It’s called “lean manufacturing.”
Complicating this supply chain is the “just-in-time” supply method. Subcontracted parts are computer-coordinated so that there are no warehouse expenses, no stocking of supplies. Parts are loaded on trucks at the supplier and delivered “just-in-time” to the loading docks for vehicle assembly. The companies calculate that the costs of the occasional late truck, due to traffic jams or storms, will be less than the savings they get from not using warehouses.
This extreme cost-cutting results in a supply chain always at the point of breaking at any vulnerable point—and the vulnerable points are many!
Today, stresses of the COVID-19 epidemic, plus storms in Texas, plus a factory fire in Japan, suddenly resulted in an extreme shortage of semiconductor microchips. Chip makers routed their scarce supplies to the highest-profit buyers—the computer and consumer electronics industries.
The auto industry, with electronics built into everything, was left out in the cold. It started to shut down. Workers at assembly plants were laid off for a week—then another week—then another. Even the highest-profit vehicles could not run full schedules.
The resulting pressure for chips is enormous. One mid-level supplier actually tried to sue to get more chips! JVIS-USA sued in federal district court to force the Dutch company NXP Semiconductors to put shipments to JVIS ahead of everyone else, so that a Jeep plant in Detroit would not shut down.
JVIS, you see, makes a computerized heating/air conditioning module that they ship to Mayco Industries, which puts it in instrument panels that Mayco then ships to Stellantis’s Jeep plant. No chips, no module, no panel, no Jeep!
It’s extra crazy because JVIS doesn’t even buy the chips directly. Layers and layers of other subcontractors have to work on them first!
The judge threw the case out. NXP said their Texas plant was doing the best it could. They said JVIS “ordered a box of cereal, and we are shipping it to them one cornflake at a time.”
The judge said she had no grounds to favor one company over another because “there’s really a drought of the semiconductors that are needed.”
The situation is really comical for all but the investors, who are furious that their flow of profits is smaller, and the executives, whose bonuses depend on pleasing the investors. But hey. They brought it on themselves. It’s their very own system—one big tangled mass of crazy.