- Aside from the pandemic, the trade war with China and the demand from products like PlayStation and Xbox contributed to chip shortage.
- The shortage led automakers to cut workers’ shifts and close down factories.
- The shortage has had an impact on new and used car prices. Certain car models might also be challenging to find.
If you’ve been paying attention to the news, you already know that there’s a global shortage of computer chips. The problem primarily stems from the COVID-19 pandemic.
When COVID-19 first began to take hold, automakers slashed their chip orders in anticipation of a decline in car sales. At the same time, there was an unforeseen increase in demand for chips to power laptops and other devices used to work and study from home.
Now that new car sales have rebounded, vehicle manufacturers are left scrambling to find computer chips. Without an ample supply of chips, many automakers will be forced to limit new vehicle production.
And that could make it tough for consumers, like yourself, to get a good deal on a new or used car.
The Role of Computer Chips in Cars
Today’s cars contain dozens of computers that are known as control modules. Each module controls a certain part of the car. For example, on late-model vehicles, one module manages the engine, while another manages the radio, etc. The modules also communicate with one another over a data network.
Each control module contains computer chips, which are also known as integrated circuits. The computer chips contain a large number of miniaturized semiconductor components (e.g., transistors) embedded on a single piece of silicon.
Without control modules—and the computer chips inside—a modern car won’t run or do much of anything else. That’s why the computer chip shortage poses such a threat to the automotive industry.
Why is There a Chip Shortage?
The spread of COVID-19 has had many unforeseen consequences, including a worldwide shortage of computer chips.
When the pandemic began, many chip factories shut down temporarily. Then when those plants reopened, they were faced with an influx of backorders to fill, especially since there was an increased demand for laptops and other devices.
But the pandemic isn’t the only reason why chips are so scarce. According to USA Today, the prior administration’s trade war with China may have caused Huawei Technologies, a major smartphone supplier, to stockpile chips that could have otherwise been used in cars.
What’s more, an array of new products, such as the revised PlayStation and Xbox video game consoles, have been gobbling up chips. The growing global 5G service network also consumes a lot of silicon.
How Automakers Are Responding
The chip shortage is hitting some automakers harder than others. A few brands, such as Hyundai and Toyota, anticipated the shortage and acquired chips in advance.
But other vehicle manufacturers haven’t been so lucky. Many have been hit hard by the chip shortage. The automakers that are struggling have begun cutting shifts and temporarily closing factories.
General Motors, for example, has announced it will temporarily shut down or extend downtimes at several plants in North America. The automaker expects that, in the end, the chip crisis will reduce its operating profits by $1.5 billion to $2 billion this year.
“We continue to work closely with our supply base to find solutions for our suppliers’ semiconductor requirements and to mitigate impact on GM,” GM said, according to CNBC. “Our intent is to make up as much production lost at these plants as possible.”
What the Auto Chip Shortage Could Mean for You
The chip shortage is expected to cause both new and used car prices to increase. So, if you plan on buying a vehicle soon, you might end up paying more than you would have before the problem began.
Early last year, many automakers temporarily halted production due to the pandemic. That earlier production loss, paired with the current loss due to the chip shortage, has created an overall reduction in new vehicles hitting dealerships. Because of the limited supply, buyers might start to see new car prices increase.
It’s also possible that certain new car models will be challenging to find. Automakers that have to ration their chip supply are devoting limited resources to their most popular models (i.e., trucks and SUVs). As a result, less popular offerings could become hard to find. Even best-sellers could become scarce if the chip shortage goes on for a long time.
The threats of limited vehicle availability and increasing new car prices are likely to make the cost of used cars climb, as well. When new car production was halted last year, the cost of used vehicles increased dramatically for the same reasons. Chances are, a similar scenario will play out this year due to the production loss caused by the chip shortage.
What’s Being Done to Fix the Problem?
A United States auto industry group, called the Alliance for Auto Innovation, predicts that the semiconductor shortage could result in 1.28 million fewer vehicles being build in 2021. Furthermore, the problem could disrupt production for another six months.
In an effort to get production back on track, the Alliance is asking the United States government for help. The hope is that officials will issue a mandate requiring suppliers to set aside a certain amount of silicon for automotive use.
President Joe Biden has already taken action to address the chip shortage. Biden has asked Congress to authorize $37 billion to increase silicon production in the United States. Much of that silicon could go towards the production of computer chips.
Some chip suppliers have also made announcements. Intel said that it would invest $20 billion in two new chip production factories in Arizona. Plus, the Taiwan Semiconductor Manufacturing Company (TSMC) has committed to spending $100 billion to ramp up its chip manufacturing capacity over the next few years.
Regardless of whether these advancements take place, the chip shortage will eventually work itself out. In fact, because suppliers are currently doubling their efforts to ramp up production, there may even be a surplus of chips in a couple of years.
But until then, consumers could have a tough time getting a good deal on a new or used vehicle.
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