By Lauren Fix, The Car Coach
The most common question my viewers have been asking 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 will cut production by 40 percent in September. Ford is idling F-150 production. GM is selling vehicles without stop/start technology and wireless charging pads.
Every car brand is scrambling to reallocate chips to their more popular vehicles. This is a real issue impacting sales, profits, jobs, future products, and 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 may end.
Why do We Have a Chip Shortage?
The chip shortage results from the COVID-19 pandemic, which increased the demand for personal electronics such as cell phones, tablets, and laptops for working at home and school. 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 then quickly rebounded with pent-up demand and zero-percent 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. When automakers realized people wanted to buy new cars again, 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) chips. Manufacturers were selling 17 million cars per year. You do the math—this is a huge issue.
Food for Thought on Electric Vehicles
The feds are now pushing electric cars, which require more technology and microchips. One car part could use 500 to 1,500 chips, depending on the complexity of the part.
Another Piece of the Puzzle
Bloomberg News reports that companies in China have made the chip shortage worse by hoarding and inflating prices. Hoarding materials for profit is no strange phenomenon 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’re still hard to source.
Automakers live 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 that 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 have to idle assembly lines and send workers home.
Here’s 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 come 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 US government to ease tariffs on their goods coming into the USA, and since there has been no relief, the squeeze is on and until they get what they want or we produce chips here in the US.
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, 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.