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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