SHOPSMART AUTOS – CUSTOMER INFORMATION – SEPTEMBER 24, 2021 – Part 3
Chip shortage likely to keep car prices sky-high through 2023
Then, just as auto chip production started to rebound in late spring, the highly contagious Delta variant struck Malaysia and other Asian countries where chips are finished and other auto parts are made. Automakers reported that U.S. dealers had fewer than 1 million new vehicles on their lots in August — 72% lower than in August 2019. Even if auto production were somehow to immediately regain its highest-ever level for vehicles sold in the U.S., it would take more than a year to achieve a more normal 60-day supply of vehicles and for prices to head down, the consulting firm Alix Partners has calculated. “Under that scenario,” said Dan Hearsch, an Alix Partners managing director, “it’s not until early 2023 before they even could overcome a backlog of sales, expected demand and build up the inventory.”
“More than I paid for my house”
For now, with parts supplies remaining scarce and production cuts spreading, many dealers are nearly out of new vehicles. On a recent visit to the “Central Avenue Strip” in suburban Toledo, Ohio, a road chock-full of dealerships, few new vehicles could be found on the lots. Some dealers filled in their lots with used vehicles. One would-be buyer, Heather Pipelow of Adrian, Michigan, said she didn’t even bother to look for a new SUV at Jim White Honda. “It’s more than I paid for my house,” she said ruefully. Ed Ewers of Mansfield, Ohio, traveled about two hours to a Toledo-area Subaru dealer to buy a used 2020 four-door Jeep Wrangler. He considered buying new but decided that a used vehicle was more in his price range to replace an aging Dodge Journey SUV. Glenn Mears, who runs four auto dealerships around Canton, Ohio, suspects the shortage will get worse before it gets better. He said dealers are managing to survive because of the high prices consumers are having to pay for both new and used vehicles. He doesn’t charge more than the sticker price, he said — enough profit to cover expenses and make money. Nor does he have to advertise as much or pay interest on a large stock of vehicles. Many vehicles, he said, are sold before they arrive from the factory.
No end in sight?
Chip orders that were made nine months ago are now starting to arrive. But other components, such as glass or parts made with plastic injection molds, are depleted, Hearsch said. Because of the virus and a general labor shortage, he said, auto-parts makers might not be able to make up for lost production. Some tentative cause for hope has begun to emerge. Siew Hai Wong, president of the Malaysia Semiconductor Industry Association, says hopefully that chip production should start returning to normal in the fall as more workers are vaccinated. Though Malaysia, Vietnam, Taiwan, Singapore and the U.S. all produce semiconductors, he said, a shortage of just one kind of chip can disrupt production. “If there is disruption in Malaysia,” Wong said, “there will be disruption somewhere in the world.” Automakers have been considering shifting to an order-based distribution system rather than keeping huge supplies on dealer lots. But no one knows whether such a system would prove more efficient. Eventually, Hearsch suggested, the Delta variant will pass and the supply chain should return to normal. By then, he predicts, automakers will line up multiple sources of parts and stock critical components. “There will be an end to it, but the question is really when,” said Ravi Anupindi, a professor at the University of Michigan who studies supply chains.
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