The ongoing chip shortage forced Ford to shut down production for their profit-driving pickups and SUVs last week, idling assembly lines in Kentucky and Ohio temporarily. While some sources predicted that the semiconductor chip constraints would be resolved by early 2022, it doesn’t appear that the auto industry is seeing major movement yet. It has led to extremely high demand for the limited supply of vehicles rolling off assembly lines with disappearing factory incentives overshadowed by dealer markup thousands over MSRP.
As a result, a recent Supplyframe survey conducted by Propeller Research found that nearly one-third of those asked had been affected in some way by the automotive chip shortage. More than one in five (21.8%) said that higher prices have deterred them from buying a vehicle recently while 48.3% said they had purchased a pre-owned vehicle rather than new due to the “resulting lack of automotive inventory”.
And while it’s becoming a commonly held belief that the shortage will persist through the first half of 2022, it’s far more than just the automotive industry that’s waiting for chips to become plentiful once again.
Supplyframe CEO and founder, Steve Flagg, said, “Due to the pandemic, the automotive industry has faced challenges with production as well as with a changing consumer mindset, as highlighted by this research. But even beyond the pandemic, the automotive sector will continue to compete with businesses in other industries such as aerospace, consumer electronics and medical devices for a dwindling supply of semiconductors and electronic components. Having multiple industries sourcing from a shared supply will lead to complications even in the long term. Automakers and companies in these other sectors now need to ask themselves how they can better manage the chip shortage to meet customer demand and allow faster distribution.”
Prices take shoppers off the market
Higher prices have changed where car buyers are finding their next vehicle, or whether they’re replacing their car at all. The shift to used cars has resulted in higher listed prices not just at dealers but in the private market too, on AutoTrader as well as marketplaces like Craigslist and Facebook Marketplace. Although still priced higher than a year ago, private sales often represent lower total purchase costs.
Increasingly, shoppers are simply choosing to defer their purchase in the hopes that prices will normalize after the chip shortage resolves, even if it takes until 2023 or longer.
Forcing consumers to change their target vehicle
Studies vary widely in their perception of what American consumers want in a car, but consensus remains that traditional ICE-powered vehicles remain the top choice, although by a narrowing margin. Roughly two in three Americans don’t want an electrified vehicle for their next car purchase, but Supplyframe indicates that a combination of chip shortages and rising gas prices has spurred shoppers to “seriously consider” electric cars. The chip shortage weighed in as the main reason to consider an EV for more than 20% of shoppers.
Flagg remarked, “Shifting demand, pre-existing supply and sourcing issues, and the ongoing pandemic point to the need for outside-in intelligence on global supply chains and the value of designing resiliency into products. Leading original equipment manufacturers in the automotive sector and beyond are beginning to take steps to make sure that happens sooner rather than later.”
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