CarSmarts | Global Chip Shortage Explained and Why It’s Important To You

By Lauren Fix, The Car Coach

The ongoing global chip shortage means that it could be tougher to buy everything from a game station to a Ford Mustang, for the next few months, maybe even until the fall. How did this happen and what does that mean for you?

But wait, besides automakers struggling with pandemic-induced plant shutdowns and a global chip shortage we are now confronting another supply chain headache: dwindling rubber supplies.

How is this possible? How did this happen?

The impact of these shortages has caused car companies to stop production of vehicles. Which means less cars for dealers to sell, which means not that many incentives or deals and it also means used car prices are on the rise again.

But why did this happen? The pandemic caused slows downs in production of semi conductor chips, an explosion of gaming devices, phones and other electronics while people where home, globally. China was proactive and gobbled up much of these chips while many manufacturers were not buying in high demand this left them with short supply.

There were 30 companies producing chips a few years, but many have outsourced the work and it reduced the production to a handful of suppliers. Even if a company designs their own chips they typically don’t produce them. Companies like Taiwan Semi-Conductor Manufacturing Company, Intel and others have been producing them in China and other companies. There are a few US chip manufacturers, but they are being impacted as well.

It’s important to know that a semi-conductor chip is not interchangeable with a car and a phone, each is specific to its application. All this great tech that we show you in cars requires a special chip. The demand is high as production ramps back up and the demand for new vehicles is at an all time high. As we add more safety, technology, and electric cars the demand is way more the the supply can handle. May car manufacturers are now taking back control of this required product, but won’t be able to ramp up fast enough.

What does this mean for you?

That’s not all, with a rubber shortage looming over suppliers we have another issue. Rubber is used in trees, wiper blades, belts, bushings, weather strip and much more.

Where did all the rubber go? There was a low demand for car parts and a high demand for rubber gloves. So rubber suppliers increased their demand. Rubber grows on trees in warm climates like Thailand, and the shortage could be here to stay possibly for several years, because it takes around seven years for a rubber tree to mature.

So don’t be surprised next time if a new set of tires costs a few more bucks than normal.

Here’s the bottom line?

The demand for new cars is high, fewer choices are available on lots and people are looking at used cars which have also increased in price by 10-15%. The average price of a new vehicle is also increased past $40,000. There are fewer incentives and deals available to you. All brands are effected.

If you are looking for a deal, look at sedans. They tend to sit on the lots longer than SUVs and trucks.

Economics 101 - high demand, low supply and prices are less negotiable. Wait until the fall as this chip and rubber shortage will not be resaved quickly. When it is the lots will fill back up with new models and used car prices will level out.

FACT: Chip shortages are leading to an increase in car prices for new and used cars

If you have additional questions, put them in the comments below and I'll be happy to answer.

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