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How the Microchip Shortage Will Impact the Auto Industry in 2022

When people first heard that a microchip shortage was impacting the auto industry, many were rather shocked. How could something so small impact the sales of something so big? The answer to that question is complicated, but there is no doubt that the shortage has already hit the passenger vehicle industry hard and will continue to do so throughout 2022. Things are improving, but they are also doing so slowly.

How the Auto Industry Is Affected by Chip Shortages

Supply chain issues became household vocabulary early in the pandemic, although the auto industry might have been impacted even before then. Forbes has looked into the many ways the shortage of this crucial component has influenced dealerships across the country. In just 2021 alone, the global vehicle industry lost more than $200 billion in revenue. That same year, the industry lost more than 11 million production units. Forecasts suggest this might drop to 7 million units for 2022 and then just under 2 million for 2023. Even when the chip shortage is over, recovering inventory and normal prices might not happen until 2025.

How It Started

Microchips were already surging in demand around the world prior to the pandemic. Part of this may have been the explosion in smartphone use in developing nations. Also, the rise of cryptocurrency led many individuals to set up ‘mining rigs’ that needed serious computational power, often using both core processors and video cards for more capacity.

Once the pandemic hit, the electronics industry witnessed dramatic growth in consumer demand for home electronics, ranging from appliances and games to electronics and mobile devices. As automakers shut down plants to comply with lockdown orders, their 5% of the chip industry was yielded to other sectors ordering higher-profit chips. Unfortunately, chipmakers also had to shutter factories at times and started falling behind in orders.

Changing Gears

Automakers were able to still make the rest of the vehicles, so they started sending some to dealerships without the chips which would be installed later. A newer tactic was to ship vehicles with fewer features. Things that started disappearing from many models included passenger seat lumbar support, wireless charging, extra key fobs, and automatic start-stop. The fewer chips each vehicle needed meant more chips to go around everywhere else.

Consumers Noticed

Prior to all this happening, dealerships often had two to three months of most models in their pipeline. Most buyers could visit a dealership, pick a vehicle, and then drive off with it that day. American inventories got as short as just 10 days, levels not witnessed since the Great Recession.

People looking to lease suddenly noticed changes in the market too. Many leaseholders were now holding on to their vehicles out of fear of not being able to arrange a new ride. This constricted lease inventory and sent those prices up, too.

Cast a Wide Net for a New Car Now

If you decide that you need a new vehicle immediately, then do yourself a favor and look far and wide for a good deal. Many new cars might be waiting on microchips to come off the assembly line, but your smartphone, tablet, or computer already has them, and you can use them to look for cars, trucks, and SUVs across the country. Auto shipping makes it possible to have vehicles delivered to your home from coast to coast.

This does open up a national marketplace to you, but you’ll also need to budget for passenger vehicle shipping in your shopping. It’s distance-dependent, and the specifics will vary based on times, dates, and the carrier in question. However, there are several figures you can use as a rule of thumb in your decision-making process:

  • Short Distances: These are typically under 500 miles and cost under $1.99 on average per mile.
  • Medium Distances: These range from 500 miles up to 1500. Assume an average mile of $0.95.
  • Long Distances: The vehicles that get moved more than 1500 miles have the lowest average, often less than $0.59 per mile.

Coping With This as a Consumer

National production of microchips is less than one-third of the global share it had 30 years ago. Government and corporate efforts alike are putting resources into more manufacturing capacity, but that might take years to address. Automakers, for their part, aren’t just looking to minimize the number of chips they use overall but also switch to newer wafer technologies whenever possible as a substitute.

If you are in the market for a new car, then be ready for certain things:

  • Don’t Expect Discounts: Some dealerships aren’t even discounting anymore. If they do, it might be only a few hundred. Some are even pricing higher than MSRP.
  • Be Flexible on Color: If you can find the model you like but in the wrong color, you might do well to buy it and have it repainted.
  • Know Comparable Models: Know what makes and models are equivalent to what you like. You might have to move to the side a little to find close to what you want.
  • Consider a Sedan: Trucks and SUVs prove the most popular choices, but that also makes them more difficult to find and expensive to buy. Contemporary sedans have a lot more space than you might think.
  • Forget Brand Loyalty: The average driver keeps their ride going for at least 11 years, and in these circumstances, some have gone even longer. Some brands you might have never considered could have actually become viable choices since the last time you went car shopping.
  • Think About a Lease: If you are brand-loyal, then think about a lease as a potential means of getting by until new cars are more available.
  • Look for New and Used: Used car prices went up over 40% at one point as dealerships looked for anything to keep their lot full. Their prices are expected to come down a lot in 2022, so you might find tremendous value on a vehicle that still has lots of life left.
  • Maximize Your Trade-In: With dealerships hurting badly for inventory, trade-in values are higher than ever. That can take some of the blunt out of new car prices.

You Can Actually Benefit From This

With chip shortages expected to continue hurting the auto industry throughout 2022 and possibly into the next year, this can actually represent an opportunity for you. If you have a vehicle you can sell and live without, you can get good value for it. With the market needing inventory badly, used vehicles are being bought and sold at record prices so you can make top dollar.

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