The global semiconductor chip shortage will impact new car markets
The ongoing global chip shortage means that it could be tougher to buy everything. From a game station to a Ford Mustang, for the next few months, maybe even until the fall, chip shortages affect the ability to purchase electronics. But wait, there is more. Automakers struggling with pandemic-induced plant shutdowns and a global chip shortage they are now confronting another supply chain headache: dwindling rubber supplies.
How is this possible? How did this happen?
The impact of these shortages has caused car companies to stop vehicle production. This means fewer cars for dealers to sell. Making it a seller’s market with fewer incentives or deals. It also means used car prices are on the rise again.
All as a result of the pandemic causing slows downs in the production of semiconductor chips, an explosion of gaming devices, phones, and other electronics vying for the same supply. And while people were home, globally, China was proactive. They kept up production, acquiring the chips, at lower demand prices, and leaving the rest of the world in short supply.
There were once 30 companies producing chips but now many have outsourced the work, reducing production to a handful of suppliers. Even if a company designs its own chips they typically don’t produce them. Companies like Taiwan Semi-Conductor Manufacturing Company, Intel, and others have been producing them, mainly in China. There are a few US chip manufacturers, but they are being impacted as well as China, once again, controls much of the rare earth minerals needs for production. (Ending China’s chokehold on rare-earth minerals)
It’s important to know that a semiconductor chip is not interchangeable between a car and a phone.
Each uses a chip that is specific to its application. All this great tech that we show you in cars requires a special chip. The demand is high as production ramps back up. Furthermore, demand for new vehicles is at an all-time high. As we add more safety, technology, and electric cars the demand is way more the supply can handle.
Many car manufacturers are now taking back control of this required product, but won’t be able to ramp up fast enough.
But its not just conductor chips
A rubber shortage looming over suppliers is creating another issue. Rubber is used in trees, wiper blades, belts, bushings, weatherstripping, and much more. But where did all the rubber go? Again, the pandemic. There was a low demand for car parts and a high demand for rubber gloves. So rubber suppliers increased their demand. Rubber grows on trees in warm climates like Thailand, and the shortage could be here to stay possibly for several years because it takes around seven years for a rubber tree to mature.
So don’t be surprised next time if a new set of tires costs a few more bucks than normal.
Here’s the bottom line?
The demand for new cars is high, fewer choices are available on lots and people are looking at used cars which have also increased in price by 10-15%. The average price of a new vehicle is also increasing. There are fewer incentives and deals available to you. All brands are affected.
If you are looking for a deal, look at sedans. They tend to sit on the lots longer than SUVs and trucks.
Economics 101 teaches us that with high demand and low supply, prices are less negotiable. Wait until the fall as this chip and rubber shortage will not be resolved quickly. When it is the lots will fill back up with new models and used car prices will level out.
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