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Harley Lover

Chip makers have a message for car makers: Your turn to pay

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I thought the group here would find this interesting - the view from the chip OEM side. The linked article begins with this preface: 

Quote

The shortages of computer chips that forced global automakers to scrap production plans for millions of cars over the past two years are easing - at a new and permanent cost to the car companies.

What had been “war room operations” to manage chip shortages are becoming embedded features of vehicle development, say executives in both industries. That has shifted the risks and some of the costs to automakers.

Newly created teams at the likes of General Motors Co (GM.N), Volkswagen AG (VOWG_p.DE) and Ford Motor Co (F.N) are negotiating directly with chipmakers. GM and Stellantis (STLA.MI) have said they will work with chip designers to design components.

Taken together, the changes represent a fundamental shift for the auto industry: higher costs, more hands-on work in chip development and more capital commitment in exchange for better visibility in their chip supplies, executives and analysts say.

For chip makers, the still-developing partnership with automakers is a welcome - and overdue reset. Many semiconductor executives point the finger at automakers’ lack of understanding of how the chip supply chain works – and an unwillingness to share cost and risk - for a large part of the recent crisis.

 

Here are some quotes: 

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C.C. Wei, chief executive of the world’s biggest chipmaker Taiwan Semiconductor Manufacturing Co (2330.TW), said he had never had an auto industry executive call him - until the shortage was desperate.

“In the past two years they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. One automaker called to urgently request 25 wafers, said Wei, who is used to fielding orders for 25,000 wafers. “No wonder you cannot get the support.”

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Thomas Caulfield, GlobalFoundries Inc (GFS.O) chief executive, said the auto industry understands it can no longer leave the risk of building multibillion-dollar chip factories to chipmakers.

“You can't have one element of the industry carry the water for the rest of the industry,” he told Reuters. “We will not put capacity on unless that customer is committed to it, and they have a state of ownership in that capacity.”

Ford has announced it will work with GlobalFoundries to secure its supply of chips. Mike Hogan, who heads GlobalFoundries’ automotive business, said more deals like that are in the pipeline with other car makers.

Quote

Chief executives of Japan’s Renesas Electronics Corp (6723.T) and Dutch NXP Semiconductors N.V. (NXPI.O) have both told Reuters they are co-locating engineers to help automakers design a new architecture where one computer would centrally control all functions.

“They have woken up,” said NXP CEO Kurt Sievers. “They have understood what it takes. They try to find the right talent. It’s a big shift.”

 

And finally this key observation, which helps explain what Farley has been saying about needing to hire a new kind of employee:  

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Securing – and keeping – chip engineers will be a challenge for automakers, which will have to compete against the likes of Alphabet Inc's (GOOGL.O) Google, Amazon.com Inc (AMZN.O) and Apple Inc (AAPL.O), said Evangelos Simoudis, a Silicon Valley venture capital investor and adviser who works with both established automakers and startups. “I think that that would lead to acquisitions,” he said.

Unlike Tesla Inc (TSLA.O), which designs its own core chips, Simoudis said traditional automakers will have to juggle production of legacy auto models as they make new investments.

 

I encourage everyone to read this article - it's one of the best I've seen lately in laying out the issue from the side of the chip companies - it explains what lays ahead for the OEMs, particularly as they transition to more EV production.

https://www.reuters.com/business/autos-transportation/chip-makers-have-message-car-makers-your-turn-pay-2022-08-03/

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Sandy Munro's recommendation to Jim Farley... vertical integration, which Ford seems to be working on.

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Even after being bitch slapped by chip manufacturers, automakers found a way to turn a loss of production into higher profit per vehicle, they made us, the consumers pay for their stupidity and inadequate planning….why am I not surprised.

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Message to car makers!  Manufacturer your own chips!  Or better yet, get rid of the computers altogether!

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Manufacturers seem to be crying all the way to the bank with vehicle shortages driving up prices

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1 hour ago, jpd80 said:

Manufacturers seem to be crying all the way to the bank with vehicle shortages driving up prices


They're leaving massive amounts of cash on the table not being able to fill all the orders.

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Posted (edited)
46 minutes ago, akirby said:


They're leaving massive amounts of cash on the table not being able to fill all the orders.

While production is still short of ideal, it’s easy to see the plan favouring a rich sales mix for those vehicles being made and sold. Last month Ford sold around 160,000 vehicles, still short of the 190k-200k expected in the good times but most of those sales losses sort of combine around ending low profit car sales that were only partially replaced by utilities.

 

Ford and GM’s guidance for 2022 still has both on track for around $10B and $13B profit respectively from auto sales and financing. Fewer sales, less builds lower incentives and a hunger from buyers….

Edited by jpd80

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Posted (edited)
12 hours ago, jpd80 said:

Ford and GM’s guidance for 2022 still has both on track for around $10B and $13B profit respectively from auto sales and financing. Fewer sales, less builds lower incentives and a hunger from buyers….

 

That's correct jpd80, executives at both Ford and GM have emphasized sales quality over sales quantity. As both automakers embark on their journey to 100% electric vehicles, the "fewer sales, less builds, lower incentives, and a hunger from buyers" strategy should pay off.

Edited by rperez817

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53 minutes ago, rperez817 said:

 

That's correct jpd80, executives at both Ford and GM have emphasized sales quality over sales quantity. As both automakers embark on their journey to 100% electric vehicles, the "fewer sales, less builds, lower incentives, and a hunger from buyers" strategy should pay off.

Now if we could just get ford to focus on product quality 😆

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12 hours ago, jpd80 said:

While production is still short of ideal, it’s easy to see the plan favouring a rich sales mix for those vehicles being made and sold. Last month Ford sold around 160,000 vehicles, still short of the 190k-200k expected in the good times but most of those sales losses sort of combine around ending low profit car sales that were only partially replaced by utilities.

 

Ford and GM’s guidance for 2022 still has both on track for around $10B and $13B profit respectively from auto sales and financing. Fewer sales, less builds lower incentives and a hunger from buyers….


Agree in general but there are at least another 20k/month that Ford could be selling at the same high profit margin if they had parts.  That’s another $1B/yr.

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1 hour ago, akirby said:

Agree in general but there are at least another 20k/month that Ford could be selling at the same high profit margin if they had parts.  That’s another $1B/yr.

 

Hopefully Ford's initiatives to increase in vertical integration, recruit "totally different talent", and improve supplier relations will pay off in 2023 and beyond with that additional volume while still meeting the company's EBIT goals.

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1 hour ago, T-dubz said:

Now if we could just get ford to focus on product quality 😆

 

Definitely T-dubz. That too is something that will require totally different talent - and a totally different mindset - compared to what Ford has now. 😆

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22 minutes ago, rperez817 said:

 

Definitely T-dubz. That too is something that will require totally different talent - and a totally different mindset - compared to what Ford has now. 😆


No it doesn’t.  It just requires some process changes and a commitment from executives to make quality the highest priority and be willing to spend the money to implement it and be willing to delay projects and builds when something isn’t right.  And hold everyone accountable.

 

Case in point - Bronco hardtops.  They should have taken the time to thoroughly test the first batch of production tops where they would have found the problems but they were so late at that point with so many orders backed up they just crossed their fingers and hoped they were ok.

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Posted (edited)
4 hours ago, akirby said:

It just requires some process changes and a commitment from executives to make quality the highest priority and be willing to spend the money to implement it and be willing to delay projects and builds when something isn’t right.  And hold everyone accountable.

 

It's much more than "some process changes", "commitment from executives", and accountability though Ford of course needs all of those things.

 

The big thing is changing the organizational culture at Ford so that it no longer tolerates making the same mistakes over and over. Totally different talent and totally different mindset goes hand in hand with achieving that, the new working model between Ford and chipmakers is a good starting point.

Edited by rperez817

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Here's an example from General Motors on how automakers are planning to collaborate with chipmakers to reduce complexity, take advantage of new technology, and avoid supply interruptions. GM's Mary Barra talks future of electric vehicles | AP News

 

To deal with the semiconductor shortage, GM is throwing out its old model of letting parts supply companies acquire the chips with GM knowing little about them.

Instead, by 2025, it will move toward three families of chips that Barra said the company will buy and control itself. They will be able to do multiple tasks, eliminating the need for dozens of chips in every vehicle.

That standardization will give GM the scale to buy in bulk and make sure supplies don’t get interrupted in the future, Barra said: “We’re also working with a select group of strategic companies to source these for the volumes. We’ll have much better control and a stable supply.”

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1 hour ago, rperez817 said:

 

It's much more than "some process changes", "commitment from executives", and accountability though Ford of course needs all of those things.

 

The big thing is changing the organizational culture at Ford so that it has no longer tolerates making the same mistakes over and over. Totally different talent and totally different mindset goes hand in hand with achieving that, the new working model between Ford and chipmakers is a good starting point.


Not making the same mistakes over and over comes from making process changes and holding everyone accountable all the way up to Farley.

 

I’ve dealt with quality, root cause analysis and process improvements in a corporate environment for 36 years.  Most problems are a lack of process or processes not being followed or management deciding that cost and schedule are more important.

 

Make the executives bonuses contingent on quality metrics instead of volume and profits and meeting schedules and you’ll see dramatic improvements.

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Posted (edited)
6 hours ago, akirby said:


Agree in general but there are at least another 20k/month that Ford could be selling at the same high profit margin if they had parts.  That’s another $1B/yr.

Agree on that as Ford is still falling short on completing customer deliveries and as vehicles arrive in dealerships, they are delivered to customers in a day or two. Inventory is slowly improving but no, availability to walk in purchases is still terrible.

 

In spite of that, Ford still had a very good Q2 automotive result and there are signs that Ford will come home stronger in Q3 & Q4. I get your point though, with proper supply and production, another 20,000 sales per month is achievable, with really tight inventories, high MSRPs are maintained.

Edited by jpd80

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Posted (edited)
23 hours ago, akirby said:

Not making the same mistakes over and over comes from making process changes and holding everyone accountable all the way up to Farley.

 

Process changes are necessary but applying that alone to a dysfunctional corporate culture like Ford Motor Company's is not sufficient to fix longstanding issues including supplier relations (such as with chipmakers) and quality control.

 

Jim Collins' book Good to Great had a chapter titled First Who...Then What that described the importance of getting the right people in the right roles before undertaking specific actions, initiatives, or process changes. Fortunately, Jim Farley recognizes this and is doing his part to get the "totally different talent" that will make it possible to finally change the culture at Ford.

Edited by rperez817

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If you have people who won’t follow the process then you have to replace them.  But most just need clear direction.  
 

You read about it.  I’ve lived it.

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