The most common question you ask is: "When is the chip shortage going to end?"
No one can answer that specifically, but the impact is plaguing automakers worse than we even thought. Car dealers have empty parking lots, consumers face limited options on new vehicle purchases and buyers must wait and wait, for their new ride to be built.
Toyota is cutting production by 40% in September, Ford is idling F-150 production, GM is selling vehicles without stop/start technology and wireless charging pads, and every car brand is scrambling to reallocate chips to their more popular vehicles.
This is a real issue, and it impacts sales, profits, jobs, future products, and this will impact the economy.
Tens of thousands of new 2021 vehicles are sitting in parking lots awaiting semiconductor chips before they can be shipped to dealers.
I'll explain everything you need to know about the chip shortage and when it might end.
Why do we have the chip shortage?
The chip shortage is a result of the COVID-19 pandemic, which increased demand for the personal electronics such as cell phones, tablets and laptops for working at home and school.
All those type of chips are used to the point where production could not keep pace with demand. The 5G rollout, and continued growth in cloud computing quickly gobbled up the capacity automakers had freed up.
In March 2020, the global pandemic prompted automakers, suppliers and car dealerships to close down. The automakers, quickly canceled orders for parts with computer chips, thinking auto sales would nosedive.
Sales of new cars did plummet initially, but quickly rebounded with pent-up demand and 0% financing offers. Dealers figured out how to sell vehicles online, offering home pickup and delivery.
When the factories restarted, the stronger-than-expected demand for new vehicles outpaced production and has yet to catch up. By the time carmakers realized people still wanted to buy their goods they found themselves at the back of the line for the chips they needed.
How many computer chips are in a car?
That depends on the vehicle. A new vehicle can have up to 100 of these semiconductor chips on board; they're used and needed in components from touchscreens to transmissions.
The current cars range from about 30 (simple) to 100 (luxury). Manufacturers were selling 17 million cars per year. We will most like produce under 15 million vehicles with the chip shortage. If you do the math this is a huge issue.
Food for thought
The government is pushing electric cars, which require more technology and micro chips. One car part could use 500 to 1,500 chips depending on the complexity of the part. Put your thoughts in the comments and lets start the conversation.
So here is another piece of the puzzle from Bloomberg News: Companies in China that have made the chip shortage even worse by hoarding and inflating prices have remained silent.
Hoarding materials for profit is no strange phenomena in Asia’s biggest economy. There are numerous examples of goods being sold at vastly elevated prices, including car-chips.
Industry insiders state that the average price of auto chips has soared by between 10 and 20 times, yet they are still hard to get.
Carmakers are living in persistent panic due to the likelihood that an absence of any single kind of tiny semiconductor could lead to a production stoppage, particularly considering smart cars use some 1,700 chips. In extreme circumstances, automakers have had to make the cars without those precious components and store them, waiting for the chips to be delivered for the final touch.
Another strategy has been to prioritize higher-margin vehicles and make those with what chips are available.
Who are these profiteers lining their pockets? Fingers are mainly pointing at chip dealers who have been sucking up stock to charge higher prices.
In a commentary earlier this month, broadcaster CCTV said that some auto-chip distributors have "maliciously" pushed up prices and urged sellers to be disciplined and refrain from hoarding components.
While these middlemen are making insane profits, automakers and their suppliers are having to idle assembly lines and send workers home.
Here is the bottom line:
A variety of analysts agree that the most problematic shortages will begin to ease in the third or fourth quarter of 2021, though it could take much of 2022 for the resulting chips to work their way through the supply chain to products.
The supply relief will not be coming from the big, national investments in the works right now by South Korea, the United States and Europe, but from older chip fabrication plants and foundries running processes far from the cutting edge and on comparatively small silicon wafers.
As for China, they are pressuring the U.S. government to ease tariffs on their goods coming into the U.S., and since there has been no relief, the squeeze is on until they get what they want or we produce these chips here in the U.S.
Watch the video review. We show you everything you need to know. If you have additional questions, put them in the comments below and I'll be happy to answer.
Lauren Fix, The Car Coach® is a nationally recognized automotive expert, media guest, journalist, author, keynote speaker and television host.
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