Despite the semiconductor shortage having encouraged the automotive sector to repeatedly idle factories, word on the ground is that things are becoming more stable. Companies are seeing less production downtime overall and workers are reporting more reliable working conditions across the board. However, several automakers have continued to express concerns (e.g. Volvo), alleging that chip shortages could stretch deep into 2022, while the U.S. government ponders how to advance chip production in-country and become less dependent on Asian suppliers.
Commerce Secretary Gina Raimondo has been touring Michigan, meeting with union members and industry heads, and plans to urge Congress to move on a $52 billion in funding bill aimed at boosting domestic production. We’ve questioned the efficacy of the CHIPS Act before, primarily in relation to how the subsidies would be allocated. But there are new concerns that the plan will mimic the Biden administration’s EV subsidies by spending heaps of taxpayer money and giving union-backed organizations a larger cut of the money.
“We’re at an inflection point and we have to make choices,” Raimondo told the press ahead of her appearance at the Detroit Economic Club on Monday. “If we’re serious about restoring American leadership in the global economy, we have to start by rebuilding our semiconductor industry so we can meet the demands of this moment.”
Considering how many components the automotive sector has outsourced, there’s a case to be made for localized production without government incentives. But the Biden administration has said it wants to accelerate the process to ensure a robust economy as soon as possible. It’s highly similar to the EV tax credit scheme (via Build Back Better) and may include the same pro-union provisions that left many wondering how much of the proposal was actually about aiding legacy automakers, technology firms, and the White House’s political allies. However, concerns that union-related provisions would crop up in the CHIPS Act didn’t manifest until after Raimondo attended a roundtable at the UAW Region 1A headquarters.
“I am extremely focused on making sure that every penny is implemented and is transparent and that we get out of this investment what we need so that we create good jobs — good, union, high-paying jobs in America,” Automotive News quoted Raimondo as saying during the meeting. “And there will be strings attached.”
When pressed, the commerce secretary reportedly did not refute that those strings could be linked to union membership.
“It’s premature to say,” Raimondo said, sitting a few feet away from UAW President Ray Curry.
The new wrinkle of potentially tying subsidies of chip manufacturing to union jobs comes as Michigan Sen. Debbie Stabenow and U.S. Rep. Dan Kildee are trying to get an additional $4,500 tax credit for EVs assembled in U.S. factories represented by a labor union added to Biden’s Build Back Better social spending bill.
Biden endorsed the Stabenow-Kildee provision during a visit to GM’s Factory One EV plant in Detroit earlier this month. Curry, the UAW president, mentioned the Stabenow-Kildee provision during remarks Monday about the need for passage of both the Build Back Better bill and the microchip production legislation.
Auto executives who attended Monday’s meeting with Raimondo said the year-long shortage of microchips has not eased much in the second half of the year.
“It’s still very hand-to-mouth,” Lear CEO Ray Scott said. “Are we better than the second quarter? Yes … but it’s literally daily line-of-sight in inventories.”
After months of idled plants and decreased output of new vehicles, automakers are eager to get a national public policy focused on boosting domestic production of microchips.
“We need to get beyond the meetings and get additional chips,” said Jonathan Jennings, Ford’s vice president of global commodity purchasing and supplier technical assistance.
Raimondo said passing the CHIPS Act would be vital for ensuring President Biden’s goal of ensuring 50 percent of all U.S. vehicles on the road are electric within the next 10 years. She expects Congress to move forward on passing it without many impediments, too. But the opposition has pointed out that the political split on infrastructure is widening, as conservative and independent legislators are shying away from unrestrained government spending — especially when inflation has become a serious concern and there’s a chance preferential treatment will be given to organizations that already favor the Democratic Party.
Automotive News noted that the UAW visit was attended exclusively by Democratic politicians. Though the event’s organizer, U.S. Rep. Debbie Dingell, stated that Republican Rep. Fred Upton had originally planned to make an appearance but could not due to a conflicting schedule. Democrat Michigan Gov. Gretchen Whitmer, Sen. Gary Peters (D-Bloomfield Township), and Sen. Debbie Stabenow (D-Lansing) did manage to show up, however.
“This is not a partisan issue,” Dingell said.
Your author is less concerned with the presumed political allegiances (you’re not going to separate UAW leadership from the Democratic Party anytime soon) and more worried about the way in which funds are being allocated.
Linking those electric vehicle incentives to unions put Tesla at a noteworthy disadvantage, despite it being the largest American producer of EVs by far. If the Biden administration was wholly concerned with promoting electrification or ensuring funding was allocated fairly, the un-unionized Tesla would be getting a larger share of the whole and more money would be set aside for building a national charging network. We’ve even questioned the need for additional EV subsidies on multiple occasions, with myself and Jo Borrás coming to similar conclusions. We don’t need them and they’re not working as advertised.
It would be a shame to see the chip solution flattering in a similar manner, especially considering this is all being done under the auspices of saving the American economy. But there are concerns that too little of the proposed investments go toward building the kind of chips the automotive sector actually uses. Of the proposed $52 billion, only $2 billion will be used to prioritize the older chips that go into cars.
Then there’s the matter of the government considering the implementation of the Defense Production Act to force automakers to furnish information pertaining to semiconductor supply lines and chip sales. On the one hand, having that data would help lawmakers make informed decisions and determine whether or not certain companies were “hoarding” semiconductors on the sly and using it as an excuse for production lapses. On the other, this would represent the kind of federal involvement in business normally reserved for wartime.
Raimondo believes passing the CHIPS Act would result in 6 new domestic microchip plans within 18 months. Michigan wants to house as many of those as it can, so a bit of political influence and favoritism is bound to take place. But the United States has been pouring more money into infrastructure programs than ever before and we need to ensure those plans will actually assist in bolstering the economy and ensure reliable access to semiconductor chips. All in all, there are not many good solutions for this problem. But there are plenty of bad ones and we should probably remain mindful of that fact.
[Image: Orhan Cam/Shutterstock]
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