Global Chip Shortage Explained and Why It’s Important To You

By Lauren Fix, The Car Coach

The ongoing global chip shortage means that it could be tougher to buy everything from a game station to a Ford Mustang for the next few months, maybe even until the fall.

How did this happen, and what does that mean for you?

Credit: Thomas Hawk

But wait, besides automakers struggling with pandemic-induced plant shutdowns and a global chip shortage, we are now confronting another supply chain headache: dwindling rubber supplies.

How is this possible? How did this happen?

The impact of these shortages has caused car companies to stop the production of vehicles. This means fewer cars for dealers to sell and not that many incentives or deals for buyers. It also means used car prices are on the rise again.

But why did this happen?

The pandemic caused slows downs in the production of semiconductor chips. At the same time, globally, there was an explosive demand for more gaming devices, phones, and other electronics while people were at home. China was proactive and gobbled up many of these chips while other manufacturers were not buying in high demand. This left automakers with a short supply.

Credit: Samsung Newsroom

A few years ago, around thirty companies worldwide produced chips, but many have outsourced the work, which reduced the production to a handful of suppliers. Even if a company designs its own chips, they typically don’t produce them. Companies like Taiwan Semi-Conductor Manufacturing Company, Intel, and others produced their chips in China and other outsourced companies. There are a few US chip manufacturers, but they are impacted as well.

It’s important to know that a semiconductor chip is not interchangeable with a car and a phone; each is specific to its application.

All this great tech that we show you in cars requires a special chip. The demand is high as production ramps back up because the demand for new vehicles is now at an all-time high. As we add more safety, technology, and electric vehicles to the mix, the demand is way more than the supply can handle. Many car manufacturers are now taking back their control of this required product, but likely won’t ramp up fast enough.

What does this mean for you?

Credit: HopsonRoad (Stephen Flanders)

A rubber shortage also now looms over suppliers. Rubber is used in tires, wiper blades, belts, bushings, weather strips, and much more.

Where did all the rubber go?

There was a low demand for car parts and a high demand for rubber gloves. So rubber suppliers increased their demand in making gloves, and everything else was reduced.

Also, rubber grows on trees in warm climates like Thailand, and planters did not keep up in the past year. Experts say the rubber shortage could be here for a while because it takes around seven years for a rubber tree to mature.

Don’t be surprised next time if a new set of tires costs a few more bucks than normal.

Credit: Bassetts Honda

Here’s the bottom line?

The demand for new cars is high, and fewer choices are available on lots. Customers are looking at used cars, which have also increased in price by 10-15 percent. The average price of a new vehicle has also increased past $40,000. There are fewer incentives and deals available to you. All brands are affected.

If you are looking for a deal, look at sedans. They tend to sit on the lots longer than SUVs and trucks.

Economics 101—high demand, low supply, and prices are less negotiable.

Wait until this fall to buy a vehicle, as this chip and rubber shortage will not straighten out so quickly. When it does, the lots will fill back up with new models, and used car prices will level out.

FACT: Chip shortages are leading to an increase in car prices for new and used cars!

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, analyst, author, and television host.  A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and aspects, energy, industry, consumer news, and safety issues.   

Lauren is the CEO of Automotive Aspects and the Editor-in-Chief of Car Coach Reports, a global automotive news outlet. She is an automotive contributor to national and local television news shows, including Fox News, Fox Business, CNN International, The Weather Channel, Inside Edition, Local Now News, Community Digital News, and more. Lauren also co-hosts a regular show on ABC.com with Paul Brian called “His Turn – Her Turn” and hosts regular radio segments on USA Radio – DayBreak. 

Lauren is honored to be inducted into the Women’s Transportation Hall of Fame and a Board Member of the Buffalo Motorcar Museum, and Juror / President for the North American Car, Utility & Truck of the Year Awards.  

Check her out on Twitter and Instagram @LaurenFix.

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