Why is the Computer Chip Shortage Affecting Car Sales?
There has been a sudden shortage of computer chip shortage during the Covid-19 pandemic. As a result, many other industries have been affected, especially the auto industry.
Although, anecdotally, this has been clear for a while. Ford CEO Jim Farley even said that the chip shortage is ‘perhaps the greatest shock I’ve even ever.’ On top of that, Automotive News used his quote in their new survey of suppliers and automakers referred to as the Examining the Global Chip Shortage.
It may surprise many of us, but, revolutionary cars use computer chips. A vehicle may comprise hundreds and thousands of computer chips. Because of the sudden chip shortage, many dealerships say their new car stock has decreased dramatically.
Simultaneously, the prices of used cars have spiked up significantly. Here we discuss how the computer chip shortage is affecting car sales:
What are These Computer Chips?
Computer chips refer to tiny transistors manufactured from silicon found in most minerals on the earth’s surface. They allow smartphones, appliances, computers, and other electrical devices to operate and function. Vehicles may also use chips.
According to an in-depth report, silicon feeds an incredible
$500 billion chip industry. These chips enjoy a fantastic global tech economy worth an evaluated $3 trillion. Moreover, the raw materials for the semiconductor business often come from Mexico and Japan. Plus, the chips are made in China, Taiwan, and some in the U.S.
What are the Effects of the Computer Chip Shortage on Car Sales?
According to the survey, only 93% of respondents believe that they think the chip shortage will severely impact the auto industry. The survey was conducted a month ago; however, recent evaluations reveal that the shortage’s impact on the auto industry is likely to be $110 billion in lost revenue.
However, in January, the evaluations were around $50 billion, which isn’t enough for 7% of respondents. There’s also the chance that the chip shortage will stretch out throughout the year. Almost ¾ of respondents, i.e., 72%, expect the chip shortage crisis to affect the industry for six months substantially.
What is Causing the Shortage in Computer Chips?
The shortage of the chips used in cars, computers, appliances, and electrical devices results from the worldwide demand for electronic goods. The intensified demand for electronics during the Covid-19 pandemic alongside inadequate planning in the weather problems and supply chain meant a dramatic shortage in computer chips.
The New York Times revealed that a new vehicle could boast 100 of these tiny semiconductor chips on board. These are used and needed in all kinds of electrical components, including transmissions, touch screens, etc.
Thus, with the increased demand for laptops and monitors came the need to shift from making chips for vehicles to constructing chips for personal electronics. When economies and industries were forced to open up faster than expected, there came a considerable demand for purchasing.
Present-day auto plants have been trying hard to get back to full-scale production. Unfortunately, chip makers unable to react quickly enough. According to an insightful report by NBC news, consumers can expect 1.2 million fewer new cars built in the coming year.
It also means that everyone is leaning towards used cars to meet their desired needs. Consequently, the price of used vehicles has increased significantly.
To Sum it Up
In-depth research shows that the overall average list prices across the nation are up by a staggering 25%. At the same time, price tags on trucks have gone up by at least 44%, whereas trade-in prices have increased by 20% year over year. The CEO Chuck Robbins told the BBC that the shortage would likely last the coming six months.