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Ford (F) Forced to Trim Production Yet Again on Chip Crunch

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Ford Motor Company F is again significantly slashing production of its hot-selling F-150 pickup truck and two other vehicles next week due to the ongoing global crunch in semiconductor supply.

The Dearborn-based automaker revealed that it plans to halt production at its Oakville Assembly Plant in Canada and Kansas City Assembly Plant in Missouri during the week of Aug 30. The Oakville plant builds the Ford Edge and Lincoln Nautilus crossovers. The Kansas City facility is responsible for the assembly of the F-150.

Ford will also operate only one of the three shifts at its Dearborn truck plant in Michigan, where the profitable F-150 pickup truck is manufactured.

Per Ford, the latest production cuts are being done to divert its scarce semiconductor supply in order to finish the nearly-completed vehicles awaiting chips so that they can be dispatched to the dealers at the earliest.

Semiconductors are silicon chips that perform control and memory functions, and are indispensable components of high-performing computer chips that power electronic devices like computers, mobile phones and other gadgets. With vehicles on the road becoming more like computers on wheels, automobiles are vastly automated, and require semiconductors for various applications, like engine controls and automatic braking systems.

When the pandemic hit the economy, the auto sector bore severe brunt of the crisis, with auto sales hitting rock bottom in the second quarter of 2020. Amid the tanking auto sales, semiconductor manufacturers shifted their production capacities to other sectors such as consumer electronics.

Nonetheless, with the global economy gradually recovering from the mayhem caused by the pandemic, auto sales managed to rebound faster than anticipated, especially in China, the world’s largest car market. This encouraged major automakers to ramp up production and replenish weak inventories at dealerships.
 
However, semiconductor makers have been unable to meet the demand spike for automotive semiconductors and will take months to realign production to cater to this upswing in demand. This has caused a shortage of semiconductors in the auto sector and has proven to be a speed-bump for automotive sales. Reportedly, the ongoing semiconductor chip shortage is expected to hit revenues from the global automotive industry to the tune of $110 billion in 2021. Also, the auto industry is facing renewed strains with the resurgence of COVID-19 cases in Asia, which is further hitting chip production.

Ford was particularly hit by the acute chip dearth in 2021 losing roughly half of its vehicle production in the second quarter of 2021. In fact, Ford’s Kansas City plant was already shut this week due to the chip shortage.

Other automakers scrambling with this supply-chain issue include Japan-based auto biggies Toyota TM and Honda HMC. In fact, Toyota recently slashed the company’s global production for the month of September by 40% from its previous plan, amid the chip crisis.

Further, German automaker Volkswagen VWAGY recently announced that it might need to trim production further due to chip shortage and that it expects the supply of chips in the third quarter to be highly volatile and constraint.

Ford Recalls F-150 Trucks Over Seat Belt Issue

Meanwhile, Ford is recalling 16,430 2021 Ford F-150 SuperCab pickup trucks due to improper seat belt installation. The recall affects vehicles produced from Jan 2 through May 27, 2021.

Per National Highway Traffic Safety Administration (NHTSA), the front seat belt webbing may be incorrectly routed during the assembly process, resulting in inadequate protection during a crash, increasing the risk of an injury.

Ford is urging owners to perform a preliminary self-assessment of the driver- and passenger-side front seat belts to ensure that the belt is routed properly. Owners will be notified by mail with instructions on how to perform an initial inspection of the vehicle’s seat belts, but the automaker emphasizes that inspection by a Ford technician is still necessary.

In case the driver’s-side seat belt fails the inspection, the owner is refrained from driving the vehicle until the recall is performed. In addition, if the passenger-side seat belt fails inspection, the seat should not be used until the recall is performed. In both the cases a new assembly will be installed to fix the issue.

This recall affects only SuperCab models. The front-seat belt assembly is different for F-150s with the Regular Cab and Crew Cab body styles.

Ford currently carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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