What started off during COVID when automakers slowed production to keep pace with consumers not spending money turned into a global shortage of cars that has only been worsened by a global chip shortage. The chips that we are talking about power pretty much every electronic device you have at home. In this blog, we will explore these interesting semi-conductors and how they affect the automotive industry.
What Are Semiconductors?
Semiconductors, better known as computer chips, are the fundamental part of a lot of electronics we use in our everyday lives. The semiconductors are produced in many different parts of the world. However, due to natural disasters and the ongoing effort to fight the spread of COVID-19, various chip manufacturers have experienced rolling closures over the last year and a half.
Whether you are typing on your computer, playing a video game, or calling your mom, each electronic device uses chips to function. With technology innovations happening every day, more and more of these products require chips, and manufacturers are simply unable to keep up.
How This Affects the Car Market in Canada
New car dealerships have been struggling to keep inventory on their lots since the beginning of COVID-19. Without a lot full of new cars to sell to customers, dealerships turn to their used cars to satisfy customers’ needs.
However, because customers see that dealers can’t get new cars, they’re waiting one more year to see how everything will pan out. Because many new car customers also bring a trade-in that a dealership sells through their used department, dealership are losing both the new car sale and the opportunity to sell these trade-ins.
As with many goods sold during the pandemic, the consistent demand for vehicles and low supply have seen prices increase steadily in the past year. So much so that some vehicles are selling used for more than they sold for brand new, depending on condition and mileage of course.
So How Did the Shortage Happen?
At the beginning of the pandemic, with fear of a repeat of the 2009 recession, car manufacturers worried that COVID-19 meant vehicle sales would slow down. In an effort to save money and avoid have too much stock they would later need to heavily discount to sell, most automakers reduced their orders.
The chip manufacturers could accommodate the reduced orders from the car companies because consumer electronics companies increased theirs to satisfy the abnormally high demand for their products due to most people needing to stay home.
Unfortunately, the automotive industry couldn’t predict sales rebounding as quickly as they did.
When Will the Shortage End?
This question is hard to answer. Make sure to do your research before purchasing a vehicle. If chip manufacturers ever catch up with demand, prices should relax again.
However, don’t let the current high prices lead you to cars being sold for unusually low prices either, especially if it’s through an apparent private sale. An economic situation like this can open the door to curbsiders, criminals who sell cars while posing as private citizens.
If prices are too high for your budget because of the global chip shortage, hold off on a new car if you can, but stay in touch with your sales rep at your dealer to make sure they get in touch with you as soon as something comes in. It’s the safest way to buy a car without getting taking advantage of.