Car Part Shortage Continues to Bog Down the Auto Market

A computer chip shortage is complicating things for automobile dealers and buyers. Learn more here.

If you’ve been looking to purchase a new car in 2021, chances are you’ve discovered a significantly different market than the last time you shopped for a new set of wheels. New car inventory at dealerships nationwide is extremely limited, while demand for used cars is higher than ever.

And while the impact of these market conditions is complex, the reason for them is simple: There just aren’t enough computer chips in the world.

Specifically, there’s a shortage of the silicon-based semiconductor chips used in products from video game consoles and cell phones to, of course, automobiles. That has forced manufacturers around the world to pause the production of countless consumer goods, chief among them new cars.

Here’s a look at what has caused the semiconductor chip shortage, how and why it impacts the new and used car markets, and when the shortage might end.

Why Are Computer Chips in Short Supply?

The computer chip shortage is, like many other supply chain problems in 2021, a result of the COVID-19 pandemic.

With lots of people working from home and spending most of their time indoors in early 2020, demand for consumer electronics skyrocketed. At the same time, car dealerships cut back on ordering parts with computer chips, expecting the pandemic to greatly reduce automobile demand.

However, the automobile industry quickly rebounded after a sluggish start. That meant auto manufacturers needed to ramp things up and produce a lot more cars, requiring more semiconductor chips. Unfortunately, by then the little silicon transistors were already in short supply.

“Everyone’s lights went off at the same time,” Joe McCabe, CEO of AutoForecast Solutions LLC, told the Detroit Free Press. “This means that there was no ability to build inventory of products and solutions when businesses were able to turn their lights back on. This created a significant bottleneck in all manufacturing processes.”

How the Shortages Impact Auto Markets

The ramifications of the chip shortage and automobile production slowdowns are hitting car dealerships hard. Philadelphia-area car dealer David Kelleher told the Wall Street Journal in May his inventory was the lowest it had ever been. Usually, Kelleher keeps close to 700 cars on his lot; in May, he had less than 100.

The silver lining — for dealers, at least — is that demand for new vehicles is so high that prices have risen accordingly, so they are at least getting a good return on available inventory.

Buyers, however, are in a tough spot. The cost of a new vehicle is much higher than usual. And even if you can afford to pay those higher prices, there’s no guarantee you’ll see your new vehicle anytime soon. In some cases, buyers are waiting weeks, if not months, for a car they purchased to be delivered to the dealership.

The chip shortage isn’t only affecting on the new car market, either. Without enough new vehicles to go around, potential buyers are turning to the used market, dramatically boosting the value of those vehicles. According to the WSJ, the average price of a used car in June 2021 was $18,453 — an astonishing 34 percent higher than the same time last year.

When Will These Shortages End?

It’s hard to know how long the computer chip shortage will last, and even harder to guess when auto manufacturing will be back to normal. Global supply chains can be hard to predict because they’re influenced by so many factors.

Taiwan, for example, is one of the world’s largest sources of semiconductor chips. It has recently been struck by its worst drought in decades, which could contribute to further chip shortages the rest of 2021.

There is reason to be optimistic, though. Back in April, Cisco CEO Chuck Robbins told the BBC that issues causing the chip shortage might be corrected as soon October 2021.

“The providers are building out more capacity,” he said. “And that’ll get better and better over the next 12 to 18 months.”

Popular Videos