Car Parts Shortage Continues to Impede the Auto Market

The ongoing shortage of computer chips is creating complications for both car dealers and buyers. If you’ve been shopping for a new car in 2021, you have likely noticed a significantly different market compared to the last time you made a purchase. New car inventory is severely limited, while demand for used cars is at an all-time high.

The root cause of these market conditions is a shortage of silicon-based semiconductor chips used in a range of products from video game consoles and cell phones to automobiles. This has resulted in manufacturers globally halting the production of numerous consumer goods, particularly new cars.
The global shortage of computer chips, a supply chain issue that emerged in 2021, has been largely attributed to the COVID-19 pandemic. In the early months of 2020, consumer electronics became increasingly popular, with many people staying indoors and working from home due to the pandemic. Meanwhile, car dealerships reduced their orders for parts with computer chips, anticipating a reduction in automobile demand. However, the automobile industry experienced a speedy recovery, causing automakers to ramp up their production of new cars and consequently increase their need for semiconductor chips. Unfortunately, the supply of silicon-based transistors was already insufficient by then.
The shortage of semiconductor chips has had significant consequences for the auto market, particularly for car dealerships. Philadelphia-area car dealer David Kelleher reported in May to the Wall Street Journal that his inventory was at an all-time low. Kelleher typically keeps nearly 700 cars on his lot, but in May, he had less than 100. Despite the challenges, the high demand for new vehicles has led to increased prices for available inventory, providing dealers with a decent return on their investment.
However, for buyers, the situation is more difficult. The cost of new vehicles is much higher than usual, and even if customers can afford the higher prices, there is no guarantee that their new car will be available anytime soon. In some cases, buyers are waiting weeks, if not months, for their new vehicles to arrive at the dealership.
The shortage of computer chips is causing significant complications for automobile dealers and buyers. The new car inventory at dealerships across the country is extremely limited, while demand for used cars is higher than ever. This complex market situation is a result of a simple problem: there just aren’t enough semiconductor chips in the world. There is a shortage of silicon-based semiconductor chips, which are used in a wide range of products, including automobiles, video game consoles, and cell phones. The shortage has forced manufacturers worldwide to pause production, most notably new cars.
The COVID-19 pandemic is largely responsible for the chip shortage. The pandemic caused a massive demand surge for consumer electronics, as many people started working from home and spending more time indoors in early 2020. At the same time, automobile dealerships reduced their orders for parts with computer chips, expecting that the pandemic would significantly reduce automobile demand. However, the automobile industry quickly bounced back, and auto manufacturers needed to ramp up production, requiring more semiconductor chips. Unfortunately, the little silicon transistors were already in short supply.
The ramifications of the chip shortage and automobile production slowdowns are hitting car dealerships hard. Buyers are in a tough spot as the cost of a new vehicle is much higher than usual. In some cases, buyers are waiting weeks, if not months, for a car they purchased to be delivered to the dealership. The shortage is also impacting the used car market, with the average price of a used car in June 2021 being 34% higher than the same time last year.
It’s hard to predict how long the computer chip shortage will last, and when auto manufacturing will return to normal. Global supply chains are influenced by many factors, making them hard to predict. Taiwan is one of the largest sources of semiconductor chips globally, and the country is currently experiencing its worst drought in decades, which could contribute to further chip shortages in the second half of 2021. While it is challenging to estimate the end of these shortages, providers are building out more capacity, and the situation may improve over the next 12 to 18 months, according to Cisco CEO Chuck Robbins.