Semiconductors are a small thing that we need a lot of. Where are they? Car dealers are suffering supply shortage when demand is high but not for the reasons you think!
These small chips are having a big impact on the auto industry.
Demand for new cars has begun to rebound in a big way, but automotive dealers have found themselves suffering a supply crunch. So right as customers are ready to help dealerships recoup some of the lost profits of the past year, the lots are already picked clean.
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It’s not the volcanic demand behind this scarcity, but rather a shortage in a part of the supply chain that many of us never think about: semiconductors.
What are they?
Without getting technical, semiconductors are computer chips, and modern cars need a lot of them. Your standard vehicle will have hundreds, and the more options and safety features it has, the more semiconductors, up to a stratospheric 1400. As unfathomably large as that number seems, it will only increase as technology improves and the industry inexorably shifts to EVs and driverless vehicles.
And if you’re wondering how a single fire and some bad weather could hurt a global industry, you’re beginning to see the trouble with the supply chain itself: it’s fragile and lacking in necessary redundancies.
When the pandemic hit, a combination of plummeting demand and safety concerns shuttering factories shifted what semiconductors were available to other buyers. Home gaming systems, for example, had a bit of a boom when we were told we might have to stay home for a couple months.
As demand returned and factories reopened, the suppliers couldn’t react as quickly. This, combined with other problems in the supply chain—a fire in Tokyo, weather in both Texas and Taiwan—have exacerbated the situation. And if you’re wondering how a single fire and some bad weather could hurt a global industry, you’re beginning to see the trouble with the supply chain itself: it’s fragile and lacking in necessary redundancies.
The losses to the industry were estimated at $50 billion last month and more than doubled this one to $110 billion. Somewhere between 2.2 and 3.9 million vehicles will go unbuilt for lack of semiconductors. Many OEMs have shifted production to their most popular models, leaving their more niche vehicles to languish.
Future Outlook
The shortage appears to be temporary, with some prognosticators predicting a steady recovery to a normal Q4, while others think it might last into the next year. Whatever the end result, there are multiple fixes in the works to ensure that the increasing demand for semiconductors will be met.
The Biden administration has already ordered a review of our supply chains, and President Biden’s infrastructure plan includes around $50 billion for the American semiconductor industry. Many OEMs are already looking for different suppliers, creating a demand for new semiconductor manufacturing facilities.
As with many aspects of modern life, the pandemic exposed a weakness. Fortunately, it looks like this weakness is being addressed, and with some hard work, we won’t face this crunch again.
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