Since the COVID-19 epidemic reached the United States last spring, car purchasing has been a rollercoaster ride, and shoppers shouldn’t unbuckle their seat belts just yet. First, manufacturers closed their plants as several states’ stay-at-home directives forced dealership showrooms to close. As demand fell, manufacturers reacted fast with discounts and financing offers to restore trust. The strategy succeeded—almost too well.
Consumers snapped up automobiles quicker than automakers could create them once dealers reopened. A global shortage of semiconductors is now causing huge production delays, and the number of cars on the market has dropped again.
Keeping the current scenario in mind, I believe that the car shortage is going to last 2–3 months more.
How long can this condition continue? And what should you do if you intend to purchase a vehicle this year? We talked to three experts in the field about what was causing the shortage, how it was affecting car brands, and when inventories might get back to normal.
What is the cause of the car shortage?
The current global microchip shortage may be the elephant in the room, but inventory issues can be traced all the way back to May 2020, when increased demand and COVID-related supply challenges first created a shortage among pickup trucks, according to Tyson Jominy, J.D. Power’s vice president of data and analytics.
“The incentives were left on for a bit too long and at a little too high a level,” Jominy added. “As May approached, we were still running a lot of 0%, 84-month deals, so APR [annual percentage rate] support remained really high.” We realized we should have taken a step back. By the end of May, pickup supplies were almost completely exhausted.”
A growing shortage of semiconductors and another shock to the supply chain made it take longer for the sector to get back on its feet and start restocking. Every major automaker has had to slow down production because of the chip shortage, which is unprecedented on this scale. Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, believes so.
“Not a single component has impeded this many firms and goods,” Fiorani added. “It affects so many components of the automobile, from power controllers to navigation to power seats; anything like this contains a semiconductor.” Everything may be halted. Any of them might be the linchpin that sends everything crashing down.”
Vehicle makers are vying for microchips with companies from other sectors, notably consumer electronics.
IHS Markit’s chief automotive analyst, Stephanie Brinley, said that demand for semiconductors that aren’t used in cars went up a lot. “As individuals worked and studied from home in the third and fourth quarters of 2020, consumer demand for items such as cellphones, computers, and video games increased.” “Demand for semiconductors increased significantly faster than semiconductor manufacturers anticipated or could deliver, resulting in a backlog of orders.”
Most affected brands
According to AutoForecast Solutions, the worldwide semiconductor scarcity will prevent more than a million automobiles from being manufactured in Western Europe, Asia, and North America in 2021, but some facilities may be able to resume production as the chip deficit improves. According to the firm, the total number of cars permanently lost in North America would lower output by around 600,000 units this year.
According to an Automotive News tally of AFS data, US automakers suffer the brunt of the inventory problem, with the Detroit Three accounting for the top ten models impacted. According to the newspaper, as of mid-May, Ford was the most shell-shocked brand, with 325,000 vehicles destroyed, including roughly 110,000 units of the iconic F-Series pickup truck. GM and Stellantis, respectively, had to forego 278,000 and 252,000 automobiles. Following the F-Series, the Jeep Cherokee (98,584 units), Chevrolet Equinox (81,833 units), Chevy Malibu (56,929 units), and Ford Explorer are the most afflicted vehicles (46,766 units).
Is Assistance on the Way?
Both automakers and the federal government are striving to remedy the shortages. While Ford has halted production on several models owing to a scarcity of microchips, manufacturers such as Nissan and GM have continued to construct vehicles, albeit without some components that require chips. Just this week, the United States Senate made a bipartisan start toward combating the inventory problem by approving legislation that, among other things, invests in domestic microprocessor manufacture.
Workarounds by Automobile Manufacturers
Meanwhile, automakers are becoming imaginative in order to fill dealer lots, according to Brinley.
“Automakers are putting more effort into making parts for cars that are in high demand and taking away some features and options,” she said. “In certain situations, automobiles are manufactured without crucial components and kept until the components are available.”
These components include navigation systems, which Nissan allegedly removed from thousands of vehicles. To keep manufacturing lines running, GM has also chosen the less-is-more approach. First, the carmaker is said to have deleted an Active Fuel Management technology from its full-size trucks, including the Chevrolet Silverado 1500 and GMC Sierra 1500, resulting in a 1- to 2-mpg efficiency reduction. GM also revealed that certain V-8 trucks and SUVs will be built without an automated stop-start capability.
Cutting features to keep vehicles in production provides some comfort, but it is not a short remedy. According to an AutoForecast Solutions monthly report, GM still had to lower production for the Silverado and Sierra, as well as the Chevy Equinox, GMC Terrain, Chevy Malibu, and Cadillac XT4.
President Biden became involved in the chip shortage early on, understanding the geopolitical aspect of the problem, but more action is needed to alleviate the situation, according to Jominy.
“The chips are mostly manufactured in China, and it is more difficult for the United States to obtain the chips in general,” Jominy explained. “Because China stopped down and returned sooner, they were able to receive the chips before the rest of the globe.” Also, a lot of chips are produced in Korea, so who doesn’t have someone on their side? Domestics in the United States.”
Indeed, according to 2020 research published by Boston Consulting Group and the Semiconductor Industry Association, the United States today contributes for only 12% of worldwide semiconductor output, down from 37% in 1990. (Though not exactly identical, semiconductors and microchips are frequently used interchangeably in the current crises.)
According to Reuters, the United States Senate enacted a $190 billion legislative package to compete with Chinese technology as the first step in addressing the shortfall. According to the Congressional Budget Office, $54 billion will be given especially to domestic semiconductor and telecommunications equipment development, with $2 billion set aside for automakers’ chips. The bill still has to clear the House of Representatives, where it is expected to take longer, but President Biden has expressed support for signing it into law.
When Will Inventory Be Normal Again?
Brinley believes that while inventory levels may never revert to pre-COVID levels, buyers may expect to see more automobiles on dealer lots as the semiconductor situation improves.
“Normal is also subject to change,” she added. “Automakers and dealers are attempting to adjust to a decreased inventory level, which has been a problem since mid-2020 for a variety of reasons.” However, in terms of the semiconductor deficit, supply is predicted to recover starting in mid-2021 and return to normal in the first quarter of 2022. The situation will progressively improve over the following eight months.”
According to Fiorani, the industry will not reach the bottom of the inventory crisis until the third or fourth quarter of this year, and vehicle inventories will likely not restore to full capacity until 2022. When questioned if the scarcity may last until 2023, Fiorani said it’s impossible to predict how long clients will have to wait.
“The issue is that we’re in an unexplored area, just like COVID was a year ago,” he explained. “We don’t know how deep this is or how quickly we’ll recover.”
In the worst case, Jominy thinks that there won’t be enough chips for another four months, but he warns that the effects on vehicle stocks may last much longer due to high demand. He thinks that the trough in inventory would be around Labor Day, because July is always the busiest car-selling season, and it began with a scarcity.
He also says that the recovery efforts won’t lead to more inventory until the first or second quarter of 2023 and that until then, customers probably won’t get the discounts and deals they’re used to.
What if I need to purchase a vehicle before 2023?
Patience and flexibility are virtues in today’s car-buying atmosphere, but negotiation abilities are useless.
“Consumers must be patient while looking for a vehicle,” Brinley explained. “It may take some time to get the vehicle they want in the configuration they desire, so be prepared to wait or compromise.” Expect to pay MSRP because there are fewer incentives and discounts available.”
Fiorani gives potential auto buyers some blunt advice, recommending them to postpone a car purchase if possible owing to escalating prices and a shortage of availability.
“Historically, it’s not a good time to buy a new car — or a used vehicle for that matter — but if you have a vehicle to sell, it’s certainly the time to do so,” he added, pointing to the increasing trade-in prices many buyers are currently witnessing.
According to Jominy, just roughly half of automobile buyers have experienced the new normal of inventory shortages. He recommends those who haven’t done so to plan ahead, pick up the phone, and chat with the dealer to discover a good solution.
“We still have 2 million units on the ground,” Jominy remarked. “Different brands are impacted differently. Kia has more inventory than it had two years ago. You can find something if you go to the market.”
He noted that now is the time to cross-shop several brands and models. Because automakers often offer six distinct SUV models on the lot, being open to several vehicle alternatives might pay financially.
Chris Miller is an auto journalist who specializes in reviewing new cars and providing helpful advice on family vehicles. He has a passion for cars and enjoys sharing his knowledge and expertise with others.