Biden Unlikely To Invoke Defense Production Act To Funnel More Chips To Automakers

Calls on the Biden administration to bolster automakers’ chip supply by invoking the Defense Production Act are unlikely to succeed as the issue is deemed too nuanced to use such a blunt tool.

The administration used the 1950 law that forces companies to produce materials for national security issues to fill vaccine supply. A senior official told Reuters that other critical industries could suffer if the act is invoked to remedy the semi-conductor chip shortage.

Such a move could hurt makers of consumer electronics like laptops as well as the makers of medical devices, such as pacemakers, the official said.

Still, no final decisions have been made. The White House, though, has been pushing chip users and producers to improve transparency to improve the industry’s capacity to forecast demand. It is also looking at ways to incentivize and encourage production at home.

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Washington has also been looking abroad for relief. The government has been appealing to Taiwan and other chip-making nations to boost their production levels for U.S. buyers. Unfortunately, there doesn’t seem to be an easy answer for automakers.

The semiconductor shortage has hit the automotive industry particularly hard. Used in everything from infotainment to engine management, they have become crucial to automakers. Ford reportedly had lots filling with vehicles that had been built and just needed to complete with chips.

Ford has warned that the shortage will reduce Q2 production by 50%. The issue has caused plant shutdowns throughout the industry and has also led some automakers to sell vehicles without some chips; GM, for instance, is building certain 2021 pickup trucks without cylinder deactivation, which lowers fuel economy of impacted models by one mile per gallon.

Such is the shortage that rental car companies have been forced to start buying second-hand vehicles and U.S. dealerships are snapping up used cars everywhere they can find them, like for example in Canada.