Computer Chip Shortage Causing A Slow Down In The New Car Market
PITTSBURGH (KDKA) - Here's a pandemic aftershock that might seem surprising: There is a growing shortage of available new cars.
The issue is computer chips!
"Chips are the digital equivalent of screws. Cars need a lot of them, they're not exactly sexy, but you can't build a car without them," says CBS Automotive Correspondent Jeff Gilbert. "When the pandemic shutdown hit the carmakers backed off on their purchases of these chips. So the chip makers sold the chips elsewhere."
There was plenty of demand for those chips for computers, laptops, and phones.
Then, when dealerships were allowed to reopen to their surprise demand for cars was hot.
"The used car business and some of the new car business is being stimulated by people that want their own private space," said the owner of #1 Cochran Rob Cochran.
Meaning a way to socially distance and get around.
At Cochran's 26 dealerships covering 18 different brands, they like to keep a 60 day supply of cars on hand.
"Instead of that 60 days optimum, we're right now in the 40s 43, 44 days supply. The inventory tightness will likely get even tighter over the next 30 to 60 days," Cochran says.
While Cochran expects things to start improving by midsummer Gilbert says, "It's going to be until next year or before a dealer inventories are back where they want them to be."
The timing couldn't be worse for dealers like Cochran who says since they were allowed to reopen last summer.
"Pretty much every month the sales have exceeded what our expectations were," he says.
Gilbert says the semiconductor industry is trying, "But they just can't make enough chips to satisfy the auto industry, so the automakers can't make enough cars to satisfy dealers."
Cochran says some brands are hanging in there like Kia, Hyundai, Nissan, VW, Buick, and others but...
"The domestic inventory, particularly with trucks and SUVs, has been challenged and they're wrestling with that," he explains.
"Every vehicle uses a lot of these chips, your heating and air conditioning system is computer-controlled, many of the systems within the car that delivers fuel in an economical way are computer-controlled, they all use chips," Gilbert says. "So what you're seeing is a car maker going, Okay, I can't make a ton of money on this vehicle, so I'll shift the chips to a vehicle that I can make more money on."
Then, in other situations, Gilbert says, "They're making some vehicles, maybe with just enough chips to make them but not enough for the heating and air conditioning system, so they're making them and parking them until more chips come in."
Ford is the only manufacturer talking about the impact of all of this and Gilbert says.
"So far they're down about two and a half million vehicles in production, and we're just hitting the bottom now," he says.
Cochran says the slow flow of new cars is spiking the used car market.
"Quite an unusual time and we really never seen anything like it when it comes to the US market," Cochran says.
The dealerships are actively seeking used vehicles including buying them and encouraging leaseholders to cash in their leases early.
"Because of the strength of the used car market it's quite a good time to be buying right now," Cochran says.
However, keep in mind if you're after a new car the selection may be a bit more limited than you might be expecting.