There is no overnight solution to the problem…
Most people don’t realize that even before the covid outbreak from China, a storm was brewing in the auto industry. Spoken of only in closed circles, automakers, parts suppliers, and others worried a shortage of microprocessor chips was coming. However, the government-imposed lockdowns made a bad situation even worse, with an estimated 250,000 car production shortfall in North America last year. And the problem is far from solved as automakers continue to make fewer cars, even shutting down production lines to conserve chip supplies.
One of the most affected has been Ford, and that unfortunately hasn’t changed. The Blue Oval announced at the beginning of February it would be stopping assembly at 8 factories in Illinois, Michigan, Kentucky, Canada, and Mexico since the chip shortage is cutting deep. That means fewer Broncos, F-150s, and Explorers for consumers. These measures might be temporary, with Ford CFO John Lawler predicting supply will improve by the end of the year.
Even Tesla is feeling the pinch, with a report from CNBC claiming the once media darling silently cutting one of the two electronic control units for the steering rack on certain Model 3 and Model Y cars. This began in late 2021, a fact which was hidden from the media. The affected vehicles are all made in China, which are then shipped to Australia, Germany, the UK, and other European countries. There’s speculation Tesla will have to or already is cutting chips for vehicles made here in the US.
Not everyone is hurting from the chip shortage. A Bloomberg report recently detailed out how Mercedes-Benz is laughing all the way to the bank since it’s more profitable than ever, and it’s all thanks to the lack of processing chips. What’s more, the German brand lost its title of the top luxury brand to bitter rival BMW. By pouring its scarce chip resources into upline models which feed the company much fatter profit margins, the automaker really raked in the cash. Of course, it helped that with a scarcity of new vehicles globally prices also increased in general, a fact you’re all too familiar with.
New car supply is supposed to increase in the second half of 2021. Several states are working with Intel and other chip manufacturers to increase production in the United States. Meanwhile, the America COMPETES Act is before US Congress would pump $52 billion into chip production efforts. It’s worth noting that Toyota has been back to full production globally since December, which has helped ease the situation somewhat.
On the used car end of the market, prices have hit a record high. According to a recent ABC News report, listing prices for used vehicles surged 40% in January year-over-year with the average listing at $28,000. That’s a record high and not something consumers who are already feeling the pinch at the pump, grocery store, and just about everywhere else want to hear. For that reason alone, more people are doubling down with their current vehicle, fixing whatever is wrong with it, with the hope of waiting this situation out.
Sources: Bloomberg, CNBC, Just Auto, News Nation, ABC News
