MICROPROCESSOR CHIP SHORTAGE FUELS CONSUMER DEMAND FOR USED CARS
If you’ve been in the market for a used vehicle, you may have noticed that the car you wanted was gone in 60 seconds!
As car dealers try to keep pace with consumer demand, the microprocessor shortage continues to put the brakes on the manufacturing of new vehicles across the globe.
So, what led to this shortage of these tiny components no bigger than a quarter? Find out as we cover:
What Is a Semiconductor Chip?
Also known as microchips or semis, semiconductor chips are made from a natural mineral called silicon. This element conducts electricity and acts as a tiny transistor that allows virtually every modern-day device to function, from the smartphones in our pockets to the vehicles that we drive.
The majority of semiconductor chip manufacturing is done in the countries of Taiwan, Korea, and China with most of the raw materials coming from Mexico and Japan.
What Caused the Auto Chip Shortage?
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You might be surprised to learn that the shortage of semiconductor chips preceded the pandemic. with demand outpacing production as consumers rely on technology in their everyday lives. For starters, the process of making microchips is a costly and complex process with the average cost to build a plant starting around 10 billion dollars and that’s just the start.
As the world continues to rely on these countries, trade issues, fires, and even droughts have strangled manufacturing efforts.
In 2017, the U.S.-China trade war reached a boiling point leading to giant manufacturers such as Huawei holding back on the release of its supply of chips. These events were just the first of many issues to come. In March of 2021, a massive fire broke out at the largest microprocessor plant in the world located in Tokyo. Not just any microprocessor plant but one that also specializes in manufacturing chips for the auto industry. The damage was so massive that it took over three months to get back online.
The next blow happened in the Spring of 2021 when a drought occurred in Taiwan. Since semiconductor manufacturing requires massive amounts of water to clean factories and semiconductor materials, this unexpected dry period put a halt to production just when global supply chains needed it the most.
Finally, the COVID-19 pandemic led to a sharp decrease in car sales due to many people staying home and lacking confidence in the economy. Car companies reacted by cutting back on manufacturing and reducing needed orders for parts, including microchips.
These microchips are not just responsible for navigation but control engine management, steering, and even the brakes on your car. In fact, a whopping 672,000 fewer vehicles were manufactured at the beginning of 2021, according to data released by the research company, IHS Markit.
As offices stayed shuttered during the pandemic, consumers snatched up home office supplies such as laptops and printers which caused manufacturers to put their efforts into meeting the demand for at-home electronics instead of car components.
Adding to the shortage problem is that many auto manufacturers typically operate with a low inventory of microchips due to the cost of carrying a large inventory and a limited shelf life. As COVID-19 lockdowns and restrictions eased, consumers were once again ready to shop for a new car only to find out that these manufacturers were unable to meet the supply with zero backup.
As car dealers try to keep pace with consumer demand, the microprocessor shortage continues to put the brakes on the manufacturing of new vehicles across the globe.
So, what led to this shortage of these tiny components no bigger than a quarter? Find out as we cover:
- What is a semiconductor chip?
- What caused the chip shortage?
- How car dealers are handling consumer demand
What Is a Semiconductor Chip?
Also known as microchips or semis, semiconductor chips are made from a natural mineral called silicon. This element conducts electricity and acts as a tiny transistor that allows virtually every modern-day device to function, from the smartphones in our pockets to the vehicles that we drive.
The majority of semiconductor chip manufacturing is done in the countries of Taiwan, Korea, and China with most of the raw materials coming from Mexico and Japan.
What Caused the Auto Chip Shortage?
'
You might be surprised to learn that the shortage of semiconductor chips preceded the pandemic. with demand outpacing production as consumers rely on technology in their everyday lives. For starters, the process of making microchips is a costly and complex process with the average cost to build a plant starting around 10 billion dollars and that’s just the start.
As the world continues to rely on these countries, trade issues, fires, and even droughts have strangled manufacturing efforts.
In 2017, the U.S.-China trade war reached a boiling point leading to giant manufacturers such as Huawei holding back on the release of its supply of chips. These events were just the first of many issues to come. In March of 2021, a massive fire broke out at the largest microprocessor plant in the world located in Tokyo. Not just any microprocessor plant but one that also specializes in manufacturing chips for the auto industry. The damage was so massive that it took over three months to get back online.
The next blow happened in the Spring of 2021 when a drought occurred in Taiwan. Since semiconductor manufacturing requires massive amounts of water to clean factories and semiconductor materials, this unexpected dry period put a halt to production just when global supply chains needed it the most.
Finally, the COVID-19 pandemic led to a sharp decrease in car sales due to many people staying home and lacking confidence in the economy. Car companies reacted by cutting back on manufacturing and reducing needed orders for parts, including microchips.
These microchips are not just responsible for navigation but control engine management, steering, and even the brakes on your car. In fact, a whopping 672,000 fewer vehicles were manufactured at the beginning of 2021, according to data released by the research company, IHS Markit.
As offices stayed shuttered during the pandemic, consumers snatched up home office supplies such as laptops and printers which caused manufacturers to put their efforts into meeting the demand for at-home electronics instead of car components.
Adding to the shortage problem is that many auto manufacturers typically operate with a low inventory of microchips due to the cost of carrying a large inventory and a limited shelf life. As COVID-19 lockdowns and restrictions eased, consumers were once again ready to shop for a new car only to find out that these manufacturers were unable to meet the supply with zero backup.
How Car Dealers Are Handling Consumer Demand
One Arizona car dealership, Kempton Chevrolet is adapting to these ongoing issues by keeping customers informed about the realistic timeframe of purchasing a new car in today’s current shopping shortage. “For new vehicles, we have a waiting list for almost every make and model with some orders stretching out up to eight months,” says Kip Kempton, Owner of Kempton Chevrolet.
While many car dealerships are pricing vehicles above the retail price and requiring hefty deposits from customers to secure their new wheels, Kempton Chevrolet WANT TO SELL YOUR CAR In ARIZONA?continued their ethical approach to car selling regardless of today’s market.
“We will not charge customers for a deposit on a new vehicle they want to purchase, ever. Instead, they will always have the first right of refusal on their ordered vehicle. Should they change their mind, they can walk away.”
The used car market has proved to be a bit trickier and continues to require exceptional effort to obtain inventory as car dealerships scramble to stock in-demand used car inventory with late-model used vehicles selling for more than new cars, according to Kempton.
This has led to Kempton employing two full-time action buyers and a third in-house buyer who deals specifically with individuals wanting to sell their vehicles to their dealership. Additionally, Kempton personally travels twice a week to purchase used cars as far away as Minnesota.
“In order to get ahead of used car demand, we’ve had to significantly increase our advertising costs both online and, on the radio, in order to reach those seeking to sell their vehicles—and for much more than they paid a year or even two years earlier.”
The news is more promising related to those pesky microprocessors needed in new cars. While September was the lowest point in General Motor’s (a maker of Chevrolet) chip supply, the supply is expected to pick up going forward each month with the demand for full chip capacity to be met by April or April of 2022 with an additional two to three months for these new car orders to be delivered to dealerships.
“The first wave will most likely be orders already sold and are expected to arrive on our lots during June or July of 2022 with inventory returning to full capacity by September or October assuming, of course, the national supply chain is functioning properly.”
It’s a great time to buy a new car if you’re patient. As far as those that want to sell their used truck or car, there is no time like the present and if you order from Kempton Chevrolet, they are waiving the shortage surcharge. Kempton cautions those that with the possibility of a chip shortage coming to an end, that used prices will see a downward trend in months to come.
While many car dealerships are pricing vehicles above the retail price and requiring hefty deposits from customers to secure their new wheels, Kempton Chevrolet WANT TO SELL YOUR CAR In ARIZONA?continued their ethical approach to car selling regardless of today’s market.
“We will not charge customers for a deposit on a new vehicle they want to purchase, ever. Instead, they will always have the first right of refusal on their ordered vehicle. Should they change their mind, they can walk away.”
The used car market has proved to be a bit trickier and continues to require exceptional effort to obtain inventory as car dealerships scramble to stock in-demand used car inventory with late-model used vehicles selling for more than new cars, according to Kempton.
This has led to Kempton employing two full-time action buyers and a third in-house buyer who deals specifically with individuals wanting to sell their vehicles to their dealership. Additionally, Kempton personally travels twice a week to purchase used cars as far away as Minnesota.
“In order to get ahead of used car demand, we’ve had to significantly increase our advertising costs both online and, on the radio, in order to reach those seeking to sell their vehicles—and for much more than they paid a year or even two years earlier.”
The news is more promising related to those pesky microprocessors needed in new cars. While September was the lowest point in General Motor’s (a maker of Chevrolet) chip supply, the supply is expected to pick up going forward each month with the demand for full chip capacity to be met by April or April of 2022 with an additional two to three months for these new car orders to be delivered to dealerships.
“The first wave will most likely be orders already sold and are expected to arrive on our lots during June or July of 2022 with inventory returning to full capacity by September or October assuming, of course, the national supply chain is functioning properly.”
It’s a great time to buy a new car if you’re patient. As far as those that want to sell their used truck or car, there is no time like the present and if you order from Kempton Chevrolet, they are waiving the shortage surcharge. Kempton cautions those that with the possibility of a chip shortage coming to an end, that used prices will see a downward trend in months to come.
Kempton, Your Arizona New, and Used Dealer
Kempton Chevrolet Buick was established in 1986 in Safford, Arizona. The relationships that develop between customers and Kempton’s employees have helped to make Chevrolet the #1 selling brand in Southeastern Arizona including Graham, Greenlee and Cochise counties. At Kempton, we will deliver cars and trucks to our Arizona customers!
Kempton Chevrolet Buick enjoys giving back to the community through various charitable donations including the 4-H Clubs, AYSO, Little League, etc.
Our professionals will handle your transaction from beginning to end making your whole shopping experience smooth and enjoyable. For car services and auto body repairs, nobody knows your car better than the highly trained professionals at Kempton Chevrolet Buick!
Kempton Chevrolet Buick enjoys giving back to the community through various charitable donations including the 4-H Clubs, AYSO, Little League, etc.
Our professionals will handle your transaction from beginning to end making your whole shopping experience smooth and enjoyable. For car services and auto body repairs, nobody knows your car better than the highly trained professionals at Kempton Chevrolet Buick!
