Chip Shortage -What’s to Blame for the Car Shortage

The automotive world has been devastated by a chip shortage that contributes to the overall car shortage we see.

The events of the past 20 months have caused fewer new cars to be produced than expected which has caused the price of used cars to skyrocket and dealerships to scramble to keep enough inventory on hand.

What has caused the shortages we see in the automotive industry?

COVID-19 Strikes its Ugly Head

The source of the COIVID-19 virus can be traced back to the Wuhan Providence in China, but that tracking doesn’t help the fact that this highly contagious virus shut down the world for several weeks last year. It seemed that every day we were being given new information as to how to handle this virus. While political leaders appeared to be at odds with scientists, the research began but the world was shut down.

Car Dealerships Got Creative

The shutdown of many automotive plants impacted the inventory at dealerships, but the expectation was that sales would drop dramatically. Sales did not drop off as much as anticipated because dealerships found ways to implement online sales techniques and virtual test drives, which started to deplete the inventory of new vehicles. Without more inventory coming in, dealer lots began to empty, but this wasn’t the main factor responsible for the car shortage.

Good for One Industry is Bad for Another

As the pandemic shut auto plants down, orders for parts were canceled. Unfortunately, the same semiconductor chips that are used in vehicles are also used in computers and gaming systems. With the world shut down, companies were turning to virtual meetings to continue to get things done. This means more electronics were being purchased during the pandemic than before it.

While sales of computers and gaming systems soared, manufacturers in this industry ordered more of the chips than before. This led to a chip shortage for the auto industry, but the additional orders from the technology sector aren’t the only thing that led to the car shortage that we have seen and still experiences today. It seems though, at this point in the process, various items were mounted on top of each other to contribute to the problems in the automotive world.

Three Major Plants Were Hit Hard

Three of the largest factories producing the semiconductor chips needed in the automotive industry were shut down, not just during the pandemic, but because of labor issues and disasters. This caused an additional delay in filling the orders for automakers around the world, leaving many vehicles unfinished and waiting for these important parts to have them completed and ready to be sent to dealerships.

Why Are the Same Chips Being Used?

You might think that the chip shortage that has translated to a vehicle shortage would be nearly impossible. We’ve had new gaming systems produced at the same time as automakers are having their orders filled in the past. This situation has been changed with the latest gaming systems. Both PlayStation and Xbox brands needed semiconductor chips that were more sophisticated than in previous systems to build the latest versions of their respective gaming systems.

This upgrade in the chips, coupled with the pandemic, tripled with three plants being shut down for various reasons, has caused the chip shortage we’ve seen in the automotive industry. The chips that would have normally been sent to automakers were used in the gaming systems when auto plants were closed and the entire industry is still trying to scramble to catch up and build vehicles that are needed at dealerships.

What’s Been the Fallout of this Shortage?

Because fewer vehicles were completed over the past several months than what many automakers had planned, a strange phenomenon took place. For the first time in automotive history, late-model used vehicle prices hit a peak and some were more expensive to buy than their brand-new counterparts. This situation is working itself out as more vehicles are being produced to fill dealership orders and replenish inventory levels.

Let’s Hope the Worst is Over

While the chip shortage had a direct impact on the automotive industry, we are currently on the precipice of a new challenge. There’s now a “Delta” variant of the coronavirus that is spreading. This has already challenged automakers with the cancelation of the New York Auto Show and a renewal of the mask mandate at many auto plants. A second shutdown would likely cripple this industry and it’s not something automakers or the economy can afford right now.