Chips or semiconductors, or microchips are crucial components in the automotive industry. They are used for various applications, including AI-driven tools, digital speedometers, camera/fuel-pressure/parking sensors,and more. Without chips, manufacturers are unable to complete car orders. Right now, the world is experiencing an unprecedented shortage of chips. In simple terms, there aren’t enough semiconductors to meet the increasing demand in the automotive industry. When manufacturing a new vehicle, about 1,400 microchips are used. With these in limited supply, new car production slowed down during 2021. But, how did we get here? If you’ve browsed Kelley Blue Book recently, you’ll understand better.

What is causing the global chip shortage?

During the pandemic, staying at home was compulsory to reduce the widespread of the deadly virus. During this period, many vehicle companies were forced to shut down operations and close their manufacturing facilities tocushion the devastating effects of the covid-19 pandemic. At this time, the suppliers of microchips had excess inventory and were intelligent enough to switch to another industry. While people stayed at home, the need to keep them occupied grew. Since nobody wanted to be bored at home, consumers were frantically clamoring for electronics and gadgets. As time went by, consumers worldwide began buying smart TVs, video gaming consoles, computers, smartphones, tablet PCs, security systems, gym systems, and appliances that would aid learning, entertainment, and working online from their homes.

Meanwhile, these devices are powered with microchips (the same ones used to manufacture cars). The implication was that as the demand for gadgets and electronics increased, microchips also increased while black book car value decreased. This unforeseen surge in demand caught semiconductor manufacturers unaware, and up till now, they have not produced enough chips to satisfy demands for both the electronics and automotive industries.

Another reason for the current chip shortage can be linked to structural issues. The power crisis in Texas, USA, in February 2021 and the fire disaster in Japan’s auto chip plants have also disrupted the production of semiconductors.

Chip shortage impacts on the automotive industry

According to AlixPartners, the semiconductor shortage will cost the global auto industry US 210 billion in revenue in 2021. In 2021, Ford’s net income dropped by 24% in Q3, while GM’s vehicle sales dropped 30%. You see, Nada Value for cars is reducing.

What’s the way out?Short- and long-term

In the short term, auto companies should invent innovative strategies to negotiate with chip suppliers.

In the long term, automakers will hope the European Union succeeds in its quest to supply 1/5th of the world’s semiconductor production by 2030. This info is based on a roadmap presented by the European Commissionin March 2021.

Have you checked Black Book Car Value vs Blue Book car value lately? If you did, you’ll agree that now could be a good time for car owners to sell cars at a higher rate.

‍