Natural calamities, political unrest, and civil wars are events that affect businesses, including car sales, in various ways. The world’s most recent problem is the coronavirus (COVID-19) pandemic that affects how people live and transact daily. That also explains the reason behind the major car chip shortage issue that you should not expect to end soon.
Demand for new vehicles is surging while the supply is tumbling down because vehicle manufacturers cannot keep up with the need in the market. It is frustrating because it implies that some plants have to shut down. Also, those working in the auto industry have to embrace pay cuts, and some are even losing their jobs.
The impact of the pandemic on the automotive sector
Since the outbreak of COVID-19, life has never been the same. The health crisis has turned everything upside down. From how we live, interact, work, engage to how we transact, the pandemic has affected every area of our lives. Moving from one destination to another has become a challenge as authorities focus on controlling the spread of COVID-19.
The automotive industry is one of the sectors experiencing the brunt of the pandemic due to a significant global shortage of semiconductors. That is due to lockdowns and stay-at-home orders that seek to curb the spread of the virus and continue affecting businesses. Car dealerships are closing down, which means that sales are also taking a plunge.
Since there are no details about how long the pandemic will be with us, governments are rolling out economic stimulus programs to help businesses weather the storm. On the other hand, companies are doing their best to keep their doors open. For instance, a decline in vehicle demand forced automakers to respond quickly with financing offers and incentives to revive confidence.
The plan worked better than expected because consumers bought autos faster than vehicle manufacturers could produce them. The aftermath is major car production delays due to a global microchip shortage, and vehicle inventory is down once more, causing sales to dip.
Chip shortage and the car shortage problem
Every part of a new car is computerized. That is where semiconductor chips come in handy. The reason is that semiconductors control dozens of functions in all modern vehicles. From dishwashers to video games and everything in between, purchasing just about anything requiring electronics has become nearly impossible to find or overly pricey in the recent past.
The cause is the significant shortage of semiconductors, which are a very important building block of technology. That makes semiconductor chips critical within the car manufacturing industry, among other sectors. So, automakers are finding themselves competing against nearly every other market for a piece of the semiconductor pie even as the global chip shortage rears its ugly head on the global supply chain.
That explains why new cars of all sizes, prices, and shapes are in short supply. The expectation is that as travel restrictions ease, vaccines become more available, and the economy rebounds, car sales will bounce back. However, new car inventories will probably remain well below their pre-pandemic levels for another year.
What chip shortage means for the vehicle manufacturing industry
CNN Business reported, as semiconductor chips remain rare, the expectation is that automakers will sharply revise down their production schedules. Also, the prices of new and used cars will probably remain high until the chip problem is resolved. According to The Washington Post, halting production by some vehicle manufacturers may be inevitable as chip shortages continue.
The implication here is that there may be layoffs, and more households will suffer the effects of the shortage of semiconductors. The impact of chip shortage on vehicle production will worsen before it gets better.