Whether you're looking to buy or lease a new car or van, you have probably noticed that finding a vehicle in stock is as hard as finding toilet rolls on a supermarket shelf during the first pandemic outbreak in 2020. Why is that? The main culprit might be small but its deficit is having a huge impact on pretty much every industry in the world at this time.
The automotive industry has been severely impacted by the global semiconductor chip shortage
The computer chip crisis has impacted every car and van maker, causing vehicle lead times to raise from 2-3 weeks to 6 months and many new vans not to be delivered until 2022. In the wake of lockdown, vehicle manufacturers have been struggling to catch up on production, and now they face an additional obstacle in keeping up with demand.
Why are microchips needed in cars and vans?
In a sense, you are looking through an array of microchips right now. In every electronic device we use, such as our mobile phones, computers, games consoles, and even our vehicles, we use microchips.
There are lots of these little chips in electronic devices
In electronic products, they are used for various reasons, but in simple terms, they contain all sorts of tiny circuits that enable everything to work. In vehicles, the infotainment system, digital displays, cameras and pretty much everything else rely on them.
What goes into making a microchip?
Chips aren't made as cars are - they have to be manufactured in ultra-clean factories with no dust or static electricity. On top of that, they take ages to make, they're extremely expensive to produce, and meeting demand in normal circumstances is difficult enough.
Why are vehicle makers unable to get enough microchips?
The production of electronic products is so dependent on microchips that even the slightest of delays can have disastrous results. It just so happens that we've witnessed more than a few slight delays recently, which have caused a huge backlog of orders. Among the major reasons for vehicle manufacturers' delays are:
Although we seem to be at the tail end of it now, the pandemic that we're all experiencing has affected pretty much every aspect of life, including microchip production. Immediately after the pandemic hit, everybody stopped buying cars and vans so vehicle manufacturers' orders for chips dropped suddenly. At the same time, technology firms began buying them in huge quantities due to the massive demand for electronic devices. Phone and laptop manufacturers were among them, as was Sony with a seemingly endless appetite for their new PlayStation 5.
When the lockdown ended, the vehicle manufacturers were ready to begin production but found themselves at the back of the line for the microchips. Microchip factories can take up to six months to resume production of specific types of chips and to catch up with demand and vehicle manufacturers are consequently facing severe delays in their supply chains.
As if the Coronavirus outbreak wasn't enough to stall microchip allocation, there was a storm in Texas that made matters even more difficult. Approximately 12% of the world's microchips production takes place in the United States, particularly in Texas, however, the state experienced prolonged power outages in February due to one of the worst storms it has ever experienced which resulted in many microchip factories being shut down. The situation has been so tragic that a major chipmaker, Infineon, says it would take them 4 months to get production back to normal, with every chip they intend to produce over the next year already sold out.
Fire in Japanese factory
Furthermore, the Renesas plant in Japan caught fire in March, which resulted in even more delays, as 17 machines were damaged. Full microchip production has only recently been resumed.
How has the shortage of microchips affected car production?
The degree to which this shortage of microchips has impacted car production globally is quite astounding. Mercedes, for instance, had to halt production of its GLC as a direct result, and Mazda cut its production by 7,000 units during Q1 of 2021.
The Oxford plant where Mini produces three- and five-door hatchbacks had to close for a short time, and Jaguar Land Rover had to suspend production of the XE, XF and F-Type, and Discovery Sport and Range Rover Evoque.
Further, Volkswagen Group has made 100,000 fewer cars so far in 2021 than it had anticipated - primarily due to the temporary closure of the factory in Germany that builds the Volkswagen Touareg, Porsche Cayenne, as well as Audi Q7 and Q8.
The shortage of microchips also affected the production of 20,000 Toyota C-HR, Yaris, and Yaris Cross models at two of Toyota's Japanese plants while Hyundai suspended production of its Tucson SUV and Nexo hydrogen-powered SUV at one of its factories, despite having enough microchips to weather the initial shortage.
Stellantis, the company behind Fiat, Chrysler, Peugeot, Citroen, and Vauxhall among others, has undoubtedly been hit the worst. It had to close 8 of its 44 factories around the world and, as a result, in the first quarter of 2021 built 190,000 fewer cars than planned.
Are microchip shortages going to end soon?
A shortage of microchips is not likely to end anytime soon, and it is almost certainly not going to do so by the end of the year. Infineon estimates that 5 million cars may be delayed in 2021while Ford confirms the shortage will affect the production of 1 million of its own cars.
There are reports about the possibility of a semiconductor shortage ending soon after Chinese chip shipments in July have been set at a record high. With both skyrocketing demand for semiconductor chips and recently added production capacity, Chinese makers have produced 203.6 billion chips so far in 2021, an increase of 47.3% over last year. Many of these chips are being made for use in everything from vehicle systems to consumer electronics, which means that the companies facing shortages for the past year might finally be able to see the light at the end of the tunnel.
Any improvement in the market is, of course, going to take some time so it's too early to set the expectations yet. Since manufacturing and supply are so generalized in the report, it is difficult to predict where the market might improve first. Although things are getting better, we are still some distance away from normality and the vehicle delivery times will likely remain longer than pre-pandemic for a while.
The best way to avoid disappointment caused by the prolonged lead times is to order your vehicle early. We highly recommend that all customers due for renewal this year or at the beginning of 2022 contact us as soon as possible to secure their new vehicle.
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