Question 1

Why is there a car shortage?

Accepted Answer

In today’s world where essentially every known market is dominated by businesses competing with one another, it is rarer to see a shortage of anything on the supply side. However, this is exactly what has happened with the new car industry. This is particularly due to a shortage of semiconductor chips. In simplest terms, semiconductor chips are often the primary component to electrical devices. This includes medical equipment, computer systems, military advancements, transportation, clean energy, and, of course, the development of new vehicles. So what is causing the computer chip shortage? The answer is not quite so simple, and there are multiple key contributing factors. Of course, the primary cause of the shortage is simply that the massive demand for semiconductor chips greatly exceeds the current supply. One main reason for the lack of supply is because the focus of chip manufacturers shifted. The pandemic pushed the urge for semiconductor chips for medical equipment and other forms of electronic devices in 2020. This was not a major issue in 2020 as many automotive manufacturers limited production of new vehicles in response to the pandemic. In addition, a fire destroyed one of the largest auto chip plants in Japan. Fast forward to 2021, the demand for new vehicles has skyrocketed. Many contribute this to the global economic recovery. While chip manufacturers are increasing their focus on the automotive industry, the production still is not yet capable of keeping up with the rising demand for new vehicles, which subsequently has caused a more limited supply of new cars and higher costs for new vehicles in 2021.

Question 2

What does the car shortage mean for consumers?

Accepted Answer

Essentially every component of new cars are computerized to a certain degree. A primary reason this computerization of new vehicles is possible is due to the semiconductor chips. In fact, the New York Times reported that as many as 100 semiconductor chips are used for a new vehicle. They are commonly used for transmissions, touchscreens, various types of driver-assist features and smart technology. Needless to say, manufacturers cannot sell an incomplete car so they are limited with production capabilities until the chip shortage is over. As expected, this has had a significant impact on the consumer. Prospective buyers are seeing higher prices for many new car models due to the demand greatly outweighing the current supply. However, the shortage of new car inventory has led to a shortage of available used cars and rental cars as well. The used car market has taken a hit as many who would otherwise purchase a new vehicle are now purchasing used cars instead. In addition, the number of trade-ins has reduced substantially in 2021. Many drivers are also opting to keep their used car instead of purchasing a new or used one. This, as expected, has caused a rise in used cars as well as new vehicles. The availability of rental cars has reduced as well, which has led to increased prices in the rental vehicle market.

Question 3

When will the car shortage end?

Accepted Answer

Sounds chaotic, right? The good news is the situation should eventually resolve itself. This will occur when chip manufacturers increase their capabilities and the demand for new and used cars settles down. However, this may take some time. According to a , 72 percent of respondents stated they believe that the global chip shortage will last for more than six months. , a vice president research director at advisory firm Forrester, stated “because demand will remain high and supply will remain constrained, we expect this shortage to last through 2022 and into 2023.” However, the automotive industry is believed to be one of the first industries to catch up after the global chip shortage, and some anticipate the problem being resolved this summer. The Taiwan Semiconductor Manufacturing Company (TSMC), which is one of the largest producers of automotive semiconductor chips, said that they should be able to catch up to the demand by June of 2021. However, this seems overly ambitious as the problem has not yet resolved itself. Predicting when the chip shortage, and subsequently the shortage of cars in general, will end would be purely speculative. Based on the information gathered, it is reasonable to anticipate the chip shortage to last until 2022. It will be a gradual recovery, rather than the supply of global chips suddenly meeting the large demand. Perhaps the best strategy is to prepare for the worst and hope for the best.

Question 4

What is the best way for buyers to handle the global chip shortage?

Accepted Answer

is to wait if doing so is possible. Improving your current ride rather than buying at a time when car prices are inflated is the most cost-effective solution. Of course, if your car is not serviceable, be sure to search for the right dealer. This may require far more work and research than it would normally take to find the right deal. However, you can still expect to pay more than you otherwise would in previous years.

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