2021 Semiconductor Chip Shortage and the Car Industry

What’s Happening?

March 2020 brought on an unprecedented time that the nation had not seen in decades. The COVID-19 pandemic hit everyone and every industry hard. The world stopped, as a result, the economy went into a recession. While some industries were experiencing an uptick in sales, production was halted, and the demand could not be met quickly enough, and vice versa. If sales went up, productions could not keep up with the demand and if sales went down, production began to halt immediately.

Over a year later, the economy is still feeling the effects of the early pandemic days. Early in the Spring of 2021 and still now, in the Summer of 2021, technology is bearing the brunt of the production slowdowns ­– various devices, including motor vehicles, utilize the use of a small silicon chip to function.

photo of semiconductor

No, not a chocolate chip….

So, what are these little chips, and why are they so important? These computer chips are made from silicon. Silicon is a chemical element that is naturally occurring. It is found in the Earth’s crust in the form of rocks, sand, clay, dirt, and other things of that nature. Silicon is a semiconductor. A semiconductor is an integral part of all things technology, particularly computer operating systems. Semiconductors generate conductivity between insulators and conductors.

Where and Why?

The major downfall here is the fact that the entire world relies heavily on a sole producer of these now highly sought-after chips — Taiwan. The Taiwan Semiconductor Manufacturing Co. is the only provider of these indispensable semiconductor chips. With only a single provider filling the rapidly growing need for these chips and an unexpected obstacle, there is a severe shortage in the actual stock of these computer chips to produce several technology products, including automobiles.

For the last several months, Taiwan has been intensely struggling with the worst of the drought that it has been stuck in. Water is a key factor in the production of these chips. Taiwan Semiconductor Manufacturing Co. uses over 150,000 tons of water, per day, to produce these chips. The water is used to clean the pieces of the chip between every process. With Taiwan in a severe drought, there is simply not enough of a supply of water to meet the demand of the chips that are needed by virtually every technology company.

Ebb and Flow

The flow of the river of economics was ultimately thwarted by the new working conditions that were brought on by COVID-19. With businesses that were not deemed “essential” closing their doors and work from home being the new norm, there was a shift in the supply and demand of products that the general public wanted to get its hands on. Car dealerships closed and sales percentages took an expected downturn. In turn, production lines halted their typical stock of cars as not to experience an overstock.

In fact, several companies’ production warehouses began producing hand sanitizer to meet the rapidly growing demand. Personal protective equipment – mask, gloves, gowns, face shields – became the new thing that everyone needed, not a brand-new car. However, that changed when the automotive industry figured out new ways to work around this pandemic.

Like a Phoenix from the Fire.

Home delivery and curbside pickup were the two new ways people began to shop during the pandemic. Therefore, car dealerships had to adapt. Cars started selling online and dealerships began offering home delivery packages or a simple pick up at the dealership option. No contact shopping became the preferred method to buy anything and everything.

While production was still not what it once was, car sales began to see a positive trend continuing throughout the pandemic. This slow in production was still able to keep up with the demand for new cars during the pandemic, however, with demand on a new rise in 2021 in addition to the severe drought in Taiwan, several industries are edging into panic mode.

business people-with-mask

Circling Back!

July 2021 is still feeling the effects of not only the slow and in some cases, complete stop of production, but the severe weather conditions that plagued most parts of the world. So, what is the automotive industry doing to remedy this problem and alleviate its inventory shortage? In conjunction with several US Government departments, the automotive industry is working on ways to bring semiconductor production to U.S. soil.

For the time being and into the foreseeable future, the United States has the means to produce these chips to prevent a shortage like this in the future. While it will definitely take some time to see any of that production

actually, come to fruition, it is a feasible long-term solution to this chip shortage.

Do You Recall?

Because of the fact that used car inventories are also seeing a decline in the product, dealerships have been bringing business in through their service departments. When recalls are issued, customers typically bring their vehicles into the service department to resolve the recall. With service being the new means of profit flow, dealers are utilizing that. Once the initial service is completed, service departments will comb through the rest of the vehicle and propose additional service, in turn, this brings more profit into service departments and thus into the dealerships as a whole.

In the Meantime.

While this chip shortage is a bump in the road, car dealerships have shifted their focus to their used car inventory. They have made the effort to sell the new inventory they have and find new ways to market their used inventory. With this new demand for used cars, dealerships are able to see the possibility of more demand for used cars in the future.

Despite the chip shortage, customers are still going to buy cars. There is no doubt about that. There will always be car buyers and car dealerships. Since Spring, the chip shortage has seen an increase in production and there is hope that this shortage will be solved by the end of 2021 or at least the beginning of 2022. Even though this shortage is costing the automotive industry overall, new inventory is starting to come back in — just not as fast as it once did.

 

 

 

 

 

 

 

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Harmful Dealership Advertising: The Lollipop 1 Model

Would you ever give a little child a lollipop and then take it back?

Outrageous, right? This causes upset, hurt feelings, destroys trust, and creates anger.

You create this same dynamic with customers when you advertise deceptively, whether it is intentional or not. In these cases, consumer protection laws often triple damages and will require you to pay for the customer’s attorney’s fees when the lawsuit is filed. This means a $50,000 vehicle could easily climb to a $150,000+ resolution. I’ve seen it, and it happens. It’s ugly.

Here is a recent tale of woe.

My fiancé and I were looking for a luxury SUV for her. We narrowed it down to one sleek model, which we will hereinafter call the Lollipop 1 Model. (This is to protect the guilty.)

The payment on the web advertisement on the dealer’s website clearly showed $679/month for 36 months for this particular vehicle. So that we don’t get too deep into the weeds, I will focus on this issue only, although other advertising trigger terms were problematic.

I called the dealership and identified myself as an automotive compliance consultant and I was interested in the Lollipop 1 for $679/month. Could I buy the one advertised on the website for $679? After some back and forth, Katherine in the DBC dictated that I could NOT buy this one, but they could GET me one for $679 with less equipment on it (aka a “base model.”) Further, they did not have one in stock, and I would have to “factory order” it. This was definitely not mentioned in the original ad disclaimer.

I pushed back and said the website asserted I could buy THIS one for $679/month. The DBC rep said that she would get back to me on Monday. Unsurprisingly, she did not call me back. No one likes to deal with a “problem.”

On Thursday of that week, I emailed once again and then called the GM, the owner’s son. (Let’s call him “Austin.”) Austin said that he had checked with their lawyer. Hold on, there Austin, your lawyer? As a dealer, why would you call your lawyer on such a simple issue… Okay, what did the lawyer say?

Austin reported the lawyer (allegedly) said that the ad was “okay” because it was being pushed by the manufacturer and the dealer could sell us a Lollipop 1 for the $679 (the base model).

Let’s break this down: Even if the disclaimer had said the $679 was for the base model of the Lollipop 1, and even if it had clearly stated the sale would be a factory order, it is still a bait and switch advertising violation and triggers Unfair and Deceptive Acts & Practices (UDAP) laws. As a dealer, you cannot show pictures of one vehicle and then disclaim your way out of it. That is false advertising.

A few days later, this dealer changed their websites. I understand factory special lease terms change at the beginning of the month. Got it. The original stock number I had looked at was gone, and a substantially similar vehicle had popped up with a payment of $689 for 36 months with the other terms being the same. Weeks later, the second vehicle lease deal morphed into a significantly higher payment of $1086.25.

The manufacturers’ disclaimer read, “Monthly lease payment based on MSRP of $61,795 and destination charges less a suggested dealer contribution resulting in a capitalized cost of $54,989. Excludes tax, title, license, options, and dealer fees.” So, the Lollipop 1 payment of $689 comes “plus options.”

There are at least three (3) problems here:

  • First, the dealer showed photos (though factory photos) of a vehicle that a consumer could not purchase for the advertised amount.
  • Second, the manufacturer was pairing this disclaimer language with all of the dealer’s inventory as it “pushes” that language to the dealers’ website.
  • Third, nothing was mentioned about the factory ordering. It’s false advertising through and through, no matter how you look at it.

Someone at your dealership or a responsible professional third party (but not someone in the sales department!) should be monitoring your website on a monthly basis, without deviation. If not, you will find surprises on your desks from either lawyers or regulators when this occurs.

Austin’s dealership has a good reputation. They are professional and courteous and owned by a lawyer. However, the fact remains you manage what you monitor. If you do not have a designated person or qualified outside party to review this information each month, you are causing yourself a problem. Even a high-quality dealership like Austin’s create problems for themselves. Consider an enterprise risk operational review to help you manage unconsidered issues.

When you end up with a customer and their lawyer in your office, complaining of false advertising, bring some lollipops. You’ll need to give one to everyone in the room as there will be many nerves to soothe, especially yours.

The Importance of Reviews in Your Google AdWords Strategy

 Reviews will also impact the ROI of your Google Adwords campaigns, and so it’s important to understand how reviews come into play for advertisers before you commit to a substantial pay-per-click budget.

First and foremost, your reviews impact your Google Seller Score, specifically, it is your average rating that counts here. Google Seller Ratings showcase advertisers with high ratings (must be above 3.5 stars) aggregated by Google from reputable business review sources. This should be seen as a base requirement, and the good news for dealers is that the vast majority are above this threshold. A point to keep in mind is that better seller ratings display higher in search results reaping the benefits of building a strong reputation.

Better seller ratings also have higher conversion rates, which can influence the ROI of your AdWords spend. Google states Seller Ratings can boost your text ads’ CTR by up to 10%, which can make a big difference to any company battling with their competitors on Google ads.

Looking past seller ratings, we can see in a study by Brightlocal (below) how your average review score on Google impacts your click-through rate. You can see that a 5-star dealer can expect to get 24% more clicks than a 3-star dealer.

The obvious benefit is that you get more clicks to your website, but ad campaigns that get a higher click-through rate get a higher quality score from Google and are thus rewarded with a lower cost per click. The bottom line here is that a 4.5-star dealer can spend significantly less to get the same amount of clicks that a 3.5-star dealer would get, and why would anyone purposely want to spend more for the same end benefit?

On a side note, if you have recently invested in separating your Google Service and Parts pages, and a primary focus now is to generate more calls, driving directions, and web clicks, then it’s important to know that Google has a new ad format which allows a dealer to promote their GMB listing and their reviews in map search results (the map pack) to drive these actions from your Google My Business page specifically.

The final point here is to reiterate what was said in the beginning and that dealers need to stop thinking of review counts and average ratings solely as a measure of customer service, but instead that your reviews, specifically on Google, are a basic building block to a successful advertising and SEO strategy, and so an integral part of your marketing program.

A Look Back at October

October brought some good news to the automotive world this time around. With several car brands seeing their sales go up and virtual SEMA, there is plenty to catch up on. SEMA

boasted new Toyota and Honda models that are sure to stun. On the up and up, Audi saw a positive uptrend this month and hopefully into the new year.

October Auto News 2020