Update: Where We’re At with the Chip Shortage
February 22, 2022
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It would’ve been hard to believe when the chip shortage began at the beginning of 2020 that we’d find ourselves nearly two years later still in the midst of a shortage, yet here we are. The good news is, the end is in sight. Keep reading to learn more about the background, current updates, and predictions for 2022 and beyond, as reported by Alex Bernstein, Managing Editor of CarsDirect.

Chip Shortage Causes

At the start of the COVID-19 crisis, due to supply chain challenges, auto manufactures canceled orders of semiconductor chips. When the economy rebounded, these items became increasingly difficult to acquire as the materials were being used in the manufacture of consumer electronics. As a result, automakers have severely reduced or stopped new car production altogether, helping to drive prices way up and impacting sales.

What Does the Chip Shortage Mean?

Due to lower vehicle inventory levels, both new car and used car prices have skyrocketed, resulting in many car shoppers putting off their purchases. Bernstein reports the average new car sales price in December 2021 was over $47,000 and the average pre-owned car price in the same month was over $28,000, a record high.

When Will the Chip Shortage End?

Experts are predicting that chip inventories will return to pre-pandemic levels in 2023. According to Bernstein, “Many chip suppliers are located overseas, and it hasn’t been easy for the U.S. to build more semiconductors domestically. While there are efforts by the government to get this to happen, it will take time.”

As of January 25, 2022 the U.S. Commerce Department reported the median inventory for chips was at a five days’ supply, compared to the pre-COVID-19 median of 40 days. “Semiconductor companies don’t expect the situation to go away within the next 6 months,” writes Bernstein.

How the Industry Is Dealing with the Shortage

To meet challenges, some automakers are making “big changes,” reports Bernstein. For example, to help encourage orders, Ford is significantly limiting the number of vehicle configurations stocked by dealers — by up to 80%. Similarly Honda is looking to make lower inventory levels the norm, which will help reduce overhead and increase profit for dealers.

The Impact on Dealers

While dealers may be selling fewer cars, Bernstein reports they’re seeing “record profits.” One of the reasons for this is the increased demand for used cars, which was caused by the shortage of new cars and higher new car prices. As a result, used car prices have risen by over 40%.

If you’re a dealer, you can help increase car sales by adopting an online retail experience — quickly becoming the preferred way for car shoppers to buy a vehicle. Contact the Carzato team today to learn more.