Global Chip Shortage Cripples Auto Industry

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A global semiconductor chip shortage is causing significant reductions in new car and truck inventory that is making it harder, and more expensive, for consumers that are shopping for new vehicles. The computer chip shortage, which is related to the coronavirus pandemic and weather events in Texas, is expected to last until 2022.

Today’s automobiles are sophisticated and technically advanced — most vehicles have between 50 and 150 chips that run everything from the engine, to the heated seats, to the infotainment systems. The COVID crisis caused automakers to slow production in early 2020, which drastically reduced their orders from semiconductor manufacturers. At the same time, companies making computer games, laptops, and smartphones increased orders.

Chip factories reallocated production to accommodate the new demands, which put the automaker’s production on the back burner. Earlier this year, when consumers flooded back into showrooms, vehicle manufacturers found themselves last in the queue for production — forced to wait for chips — thus explaining the shortage.

Unusually cold weather in Texas in February caused additional headaches for automakers as three large semiconductor companies were forced to shut down for a full week.

To keep factories running, automakers rely on a consistent flow of components from thousands of external suppliers — even a small hiccup in the supply chain can cause serious delays. The lack of semiconductor chips, which affect dozens of components, was nothing short of crippling. Some automakers, such as BMW, Mini, Ford, Fiat, Chrysler, Volkswagen, and Nissan, have been forced to adapt production or idle plants due to the shortage.

Dealerships, realizing that their on-hand inventory levels are plummeting, have begun to hold out for larger profits on remaining inventory (and they are scrambling to fill vacancies on their lots with late-model used vehicles to offer shoppers). A recent report said that the average new car price climbed to $37,200 in Q1 of 2021 — an 8.4 percent increase from the same period in 2020.

Chip makers are investing billions over the next several years to increase production to meet demands, but some experts fear that the auto industry won’t be back to normal levels of production until next year.


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