Honda cuts car production on massive chip shortage

Nikkei -- Jan 08
Honda Motor will reduce vehicle production due to a supply crunch in semiconductors, Nikkei has learned, a sign that a pandemic-spurred global shortage is threatening the auto industry.

The Japanese automaker will first shrink production by about 4,000 units this month. The change will mainly affect the Fit subcompact manufactured at a plant in Suzuka, a city in Japan's Mie Prefecture.

There are warnings that the cuts could be worse later in the year. "The period starting in February may be grim," said a source familiar with the matter. The shortage could "impact tens of thousands of vehicles during the January-March quarter on the domestic side alone," the source added.

Honda has apparently run short on semiconductors used in vehicle control systems. As people stay mainly indoors and work from home, demand has surged for chips used in smartphones and computers. As chipmakers focus on meeting that demand, semiconductor supplies to auto parts manufacturers have stalled.

In October last year, Asahi Kasei suffered fire damage at its semiconductor plant in Japan's Miyazaki Prefecture. That has contributed to a shortage in chips for audio components. But the incident apparently is not connected to Honda's production cuts.

"We have secured inventories [for that component] at this moment," said a Honda representative.

Honda will not halt factory operations this month, but the company is expected to limit the daily number of vehicles produced. A cutback of 4,000 autos represents less than 0.1% of the 4.77 million units produced globally in fiscal 2019.

Because the process of procuring material and turning it into semiconductors takes more than three months, adjusting production volume quickly based on demand is a tall order. The coronavirus pandemic caused demand for cars to drop during the first half of 2020. At the time, automakers temporarily cut orders for semiconductors, and the chip suppliers modified production plans accordingly.

- Nikkei