A global shortage of microchips hit home for the area’s largest manufacturer, but another has the potential to address the problem.
A worldwide microchip shortage crashed into the manufacturing industry as demand for products that use the chip skyrocketed due to the pandemic. As demand for more vehicles and devices like computers or cell phones grew, the problem created what likely will be a lasting effect on the industry, causing Stellantis, the largest employer in Kokomo, to furlough around 1,800 workers last month.
According to Stellantis Director of Manufacturing and Labor Communications Jodi Tinson, the shortage began to hit the company in January, and production of the Jeep Compas at the Toluca, Mexico, plant was halted for a previously-scheduled down week, though that shutdown was extended for the whole of January.
The Jeep Compass uses nine-speed transmissions and, due to the shutdown in Toluca, caused the company to furlough the 1,800 workers producing the transmissions at all Kokomo and Tipton plants, which includes the Kokomo Transmission Plant, Kokomo Casting Plant, Indiana Transmission Plant, and the Tipton Transmission Plant.
All four of the plants’ nine-speed was production was halted as a result of the shortage, which, according to Tinson, was to offset the downtime from the Toluca plant.
“So for the whole month of January, the plants were making nine speeds,” Tinson said. “They were making the components, all the transmissions. And at the end of January, our management team kind of went, ‘Wait a minute, with Toluca being down all month, if we keep running, we’re going to have too much capacity of nine-speeds, which isn’t a good thing.’ So the decision was made to take Kokomo down for the first couple weeks in February to balance our inventory of nine speeds.”
Though all four local plants resumed nine-speed production this week, the microchip shortage still will have a lasting effect on local manufacturers.
When asked how Stellantis will address the shortage, Tinson provided the following statement.
"We are working closely with our global supply chain network to manage the manufacturing impact caused by the global microchip shortage and will continue to make production adjustments as necessary,” she said.
A local start to the solution?
At the General Motors Components Holding plant in Kokomo lies an empty semiconductor fabrication, or “fab” facility, which has sat empty for the past few years.
While the microchip shortage has not affected the GM plant as much as Stellantis, according to UAW Local 292 President Matt Collins, the Kokomo plant has the potential to play a role in addressing the shortage.
According to Collins, GM has continued to manufacture vehicles despite the shortage, leading to increased storage of the vehicles that can’t be completed without the microchips.
“And unfortunately, this chip shortage, I don’t think it’s going to go away anytime soon,” Collins said. “I think they’re thinking maybe the last part of the year, but it’s just the reliance on and the instability of the overseas suppliers. We’re never going to get our finger on that like we did, and I know GM got away from vertical integration back in the ‘80s and ‘90s because they didn’t want to be caught again, where if a plant struck they would be shut down. But they went too far the other way it seems like, totally reliant on outside suppliers, and then you get this.
“So I think maybe a mix may assist. GM can own some of their own chip manufacturing facilities and then use outside as well. But when you rely on one, no matter which, inside or outside, when it’s all in one basket, you get hit like this.”
The fab facility in Kokomo is built specifically for microchip production, Collins said.
The facility was shut down in 2017, according to previous reporting by the Perspective. The decision was made to wind down semiconductor microchip production because, according to a statement from GM, “current production volumes do not support a profitable operation.”
About 160 GM employees were laid off as a result.
The fab facility was built on a floating foundation and includes a specialty air handling system, according to Collins. If GM decided to resume microchip production, Collins said it would be significantly more cost-effective to buy equipment and use it at the Kokomo location instead of building a new facility.
Since the shortage has hit plants both globally and locally, Collins has been in contact with local and state government officials, as well as the international UAW, and said discussions relating to the possibility of resuming microchip production in Kokomo have been positive.
Despite the discussions, Collins said it was “a long shot” because the company would have to change its entire global manufacturing strategy.
“Their whole supply chain would have to change,” Collins said. “Because right now, they (GM) have basically went away from components and parts work. They buy a lot now, even the stuff we make, engine controllers, inflatable restraint controllers, and all that kind of stuff. The next generations are all coming from other suppliers. They got it to where they didn’t have the interest in being part suppliers anymore. They just want to build cars, buy the parts, and put them together. And for a long time that was OK until the volatility of the overseas stuff comes up, and you’re in a pinch.”
Collins pointed to the former Ventec-GM partnership last year as a reason the plant could resume microchip productions.
The partnership began in May, and local workers created more than 30,000 ventilators before shutting down production in November. The partnership, while short, was successful and employed over 1,000 people.
The partnership proved, once again, that the GM plant in Kokomo could be a feasible option for addressing the microchip shortage.
“It’s not really a labor issue for why it can’t be profitable, with any part, not just chips,” Collins said. “We have the best quality. I always tout that, benchmark. We’ve proven over and over what we can do. The ventilator thing proved that again. That project was awesome.”