US Factory Production Drops as Auto Industry Struggles

Production at American factories saw a surprise drop at the end of 2021, helped along by a decline in motor vehicle manufacturing, which was itself caused by the continuing semiconductor shortage.

As Reuters reported Friday (Jan. 14), manufacturing output fell by 0.3% in December after increasing by 0.6% the month before, per Federal Reserve figures. The news outlet said the economists it polled had predicted factory production rising 0.5%. However, output was up 3.5% compared to December 2020.

The report notes that manufacturing — which makes up a little less than 12% of the U.S. economy — is still supported by lean inventories at businesses, thanks to a strong demand for goods. However, the pandemic has stretched supply chains past their limit, helping fuel rising inflation that has reached historic levels.

Read more: Inflation Hits 7%, Highest Level in 40 Years

Inflation hit 7% this week, the highest level since 1982, according to the Bureau of Labor Statistics, one month after hitting a 39-year high.

Production at auto plants fell 1.3% in December after a 1.7% rise in November. Motor vehicle output is around 6% lower than it was a year ago.

Last month saw two automakers, Stellantis and BMW, announce moves to improve their supply of these critical components that enable today’s high-tech, connected vehicles. In the case of Stellatis, that meant a partnership with with electronics manufacturer Foxconn to design and sell semiconductors for both Stellantis and third-party automotive industry customers.

See: Automakers Announce Agreements to Improve Supply of Semiconductor Chips

BMW, meanwhile, signed direct agreements with chip suppliers to secure several million semiconductors, and pledged to work with suppliers in new ways become more closely involved in the supplier network.

Supply chain constraints have driven up the cost of used cars and trucks, helping fuel inflation. In late 2021, the vehicle valuation service Kelley Blue Book (KBB) reported that the average price of used vehicles had gone above $27,000 for the first time.