what is causing the Chip shortage

[Anonymous]

what is causing the Chip shortage ?

How long will it take for it to go back to normal again? trying to buy a new car but I guess I might have to wait there its crazy out there

[Anonymous]

Chips are mostly made in Asia. Asia had very strict lockdowns during COVID, so that disrupted production.

Demand is waaaaaaay up for chips, since you need them for everything from engines, to in-dash screen infotainment, to your power adjustable seats. Lots of chips in a single car. Automakers are competing TV, cell phone, industrial users, etc for chips.

The US is building new chip factories here to prevent this from happening again. But it will take a few years.

[Anonymous]

Cars and other basic tech use older chip manufacturing. Cheap, large chips that run very cool and reliably.

The chip manufactures have been investing in higher tech processed that make smaller, faster, hotter chips like in PC's and cell phones. They don't make much money on the older chips so they haven't invested in new factories.

[Anonymous]

Anonymous wrote:Chips are mostly made in Asia. Asia had very strict lockdowns during COVID, so that disrupted production.

Demand is waaaaaaay up for chips, since you need them for everything from engines, to in-dash screen infotainment, to your power adjustable seats. Lots of chips in a single car. Automakers are competing TV, cell phone, industrial users, etc for chips.

The US is building new chip factories here to prevent this from happening again. But it will take a few years.

Lockdowns in Korea/Taiwan were not the issue. The issue is that because new auto sales went down in 2020 (partially due to lockdowns in places that assemble cars, partially due to reduced new car demand), the automotive vendors reduced their future reserve capacity on semiconductor production lines. That reserve production capacity has now been contracted to others, and there is a spike in automotive demand. But there is now no semiconductor production capacity for them to buy.

Not a bad explanation from a Toyota dealership: https://www.toyotaofnorthcharlotte.com/research/the-car-chip-shortage-explained/

The COVID-19 pandemic totally messed up forecasting for goods. Back in March of 2020, shutdowns and quarantines kicked off. Automotive manufacturers figured that this would lead to a lower demand for new cars; due to that assumption, they forecasted fewer sales and as such, canceled chip orders. Unfortunately, they were wrong. Demand dropped temporarily, but it bounced right back up… and the car chips weren’t there, which means the car chip shortage began.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Chips are mostly made in Asia. Asia had very strict lockdowns during COVID, so that disrupted production.

Demand is waaaaaaay up for chips, since you need them for everything from engines, to in-dash screen infotainment, to your power adjustable seats. Lots of chips in a single car. Automakers are competing TV, cell phone, industrial users, etc for chips.

The US is building new chip factories here to prevent this from happening again. But it will take a few years.

Lockdowns in Korea/Taiwan were not the issue. The issue is that because new auto sales went down in 2020 (partially due to lockdowns in places that assemble cars, partially due to reduced new car demand), the automotive vendors reduced their future reserve capacity on semiconductor production lines. That reserve production capacity has now been contracted to others, and there is a spike in automotive demand. But there is now no semiconductor production capacity for them to buy.

Not a bad explanation from a Toyota dealership: https://www.toyotaofnorthcharlotte.com/research/the-car-chip-shortage-explained/

The COVID-19 pandemic totally messed up forecasting for goods. Back in March of 2020, shutdowns and quarantines kicked off. Automotive manufacturers figured that this would lead to a lower demand for new cars; due to that assumption, they forecasted fewer sales and as such, canceled chip orders. Unfortunately, they were wrong. Demand dropped temporarily, but it bounced right back up… and the car chips weren’t there, which means the car chip shortage began.

Yes, in other parts of the world, there were chip shortages and automobile shortages. The pandemic and the changing forecast of automakers in America (or at least ones that sell in America), allowed the chip production allocations to go to other countries who snapped them up in the 18 months that US based automakers were decreasing production plans. Once they decided to return production to earlier forecasting models, there was no supply to buy anymore. So, this will continue for at least a couple of years until US based chip manufacturing can be built and come on-line to start to ease the backlog. I would guess at least three years, give or take.

[Anonymous]

As for cars, I think the automakers learned an important lesson: decades of chasing volume with endless discounts and sales was not great. In 2021, carmakers found that tight supplies meant much higher prices across the board. Carmakers made amazing profits by selling FEWER cars. Many car dealers had their best (profit) year by selling FEWER cars. I don't see them going back to the good old days any time soon.

Corporations are learning. I feel like I am seeing the exact same supply/demand/price dynamic being played out with airline tickets.

[Anonymous]

Anonymous wrote:As for cars, I think the automakers learned an important lesson: decades of chasing volume with endless discounts and sales was not great. In 2021, carmakers found that tight supplies meant much higher prices across the board. Carmakers made amazing profits by selling FEWER cars. Many car dealers had their best (profit) year by selling FEWER cars. I don't see them going back to the good old days any time soon.

Corporations are learning. I feel like I am seeing the exact same supply/demand/price dynamic being played out with airline tickets.

It's not up to them. The competition will bring car prices down again. Remember, it's not Ford vs Chevrolet, it's Koons vs Penske vs Autonation. Once supplies catch up, the manufacturers will build as many cars as can be sold and the dealerships will trip over each other to earn additional sales. As long as the dealership structure remains in place, this will be what happens. The only thing that will change this is if the factories go direct like Tesla.

Note that the used car market is much more opaque in valuation, so no-haggle pricing often works there because consumers often can't directly comparison shop.

[Anonymous]

The economics of the dealer model has changed. Manufacturers are going to start overproduction that they will need to support financially with “cash on the hood” incentives, and rebates, or holdback, etc. Ford has begun direct sales and Honda is moving in that direction. There will be a sea change in the next five years as ICE vehicles are phased out and EVs become the norm. EVs don’t require the same level of service (oil changes, plugs, ignition coils, fuel injectors, muffler/exhaust, fluids, transmission/dufferential, piston rings, manifold) and this is how must dealerships currently make their profits. This also means fewer mechanics and will affect everything from auto parts stores to your local gas station mechanic.

[Anonymous]

Anonymous wrote:The economics of the dealer model has changed. Manufacturers are NOT going to start overproduction that they will need to support financially with “cash on the hood” incentives, and rebates, or holdback, etc. Ford has begun direct sales and Honda is moving in that direction. There will be a sea change in the next five years as ICE vehicles are phased out and EVs become the norm. EVs don’t require the same level of service (oil changes, plugs, ignition coils, fuel injectors, muffler/exhaust, fluids, transmission/dufferential, piston rings, manifold) and this is how must dealerships currently make their profits. This also means fewer mechanics and will affect everything from auto parts stores to your local gas station mechanic.