Car Chip Shortage

The COVID-19 pandemic caused the world to shut down. As a result, many industries were impacted by this. Factories shut down and many supply chains were severely disrupted. This made supplies needed for chip manufacturing unavailable. The global shortage of semiconductor chips has extensive consequences across multiple industries.

Consumers are seeing price increases and a shortage of products such as cars, televisions, mobile phones, and game consoles. It is particularly having severe consequences on the automotive industry. The shortage was initially thought to only continue in Q3 or Q4 for the automotive industry. However, it is anticipated to continue into 2022 and possibly beyond that. Chip production started to pick back up in late spring, however due to the spike in delta variant cases in Malaysia and other Asian countries where chips are finished and other parts are made causing it to be disrupted yet again.

In the United States, vehicles sales plummeted by 18 percent in August due to these supply shortages. U.S. dealerships had fewer than 1 million new vehicles on their lots in August, which is 72 percent lower than in August 2019.

Most dealers are out of new vehicles due to supply shortages and production cuts spreading. This means that record-high prices for new and used vehicles, as well as rental cars, will most likely extend until 2023.

Toyota, the world’s largest automaker, has cut its global production by 40 percent. American-based automakers are expected to take the hardest hit. Of the 1.1 million vehicles projected to experience production delays, Ford, Stellantis, and General Motors account for 855,000. Currently, Ford has five of the top 10 models experiencing production issues, with the F-series facing 109,710 delayed units. In North America, Japanese automakers are not being hit as hard. Honda, Nissan, and Toyota are projected to take a decline of 108,549 delayed units.

BMW And Mercedes are seeking to focus on bigger and pricier cars to target higher profit margins. Instead of focusing on volume-based sales, they aim to sell fewer cars and make more money. Essentially, they know people will continue to pay a premium for luxury cars, so their prices will not decrease during the microchip shortage. Brands such as Ferrari have utilized this type of pricing strategy.

Congress currently has the Chips Act in place. It is designed to put billions of dollars into helping the semiconductor infrastructure handle the current shortage and future increase in demand.