NEWS

How Long Will the Vehicle Inventory Shortage Last?

chip-shortage.jpg Cars.com illustration by Paul Dolan

Car shopping has been a rollercoaster ride since the COVID-19 pandemic hit the U.S. last spring, and customers shouldn’t unbuckle their seat belts quite yet. First, automakers shuttered their factories as many states’ stay-at-home orders prompted dealership showrooms to shut down. Demand plummeted and automakers quickly responded with incentives and financing offers to revive confidence. The plan worked — only a little too well. As dealers reopened, consumers snatched up vehicles faster than automakers could produce them. Now, a global microchip shortage is causing major production delays, and vehicle inventory has sunk again.

Related: Car Shoppers Face Shorter Supply, Rising Prices

How long will this situation last? And what should you do if you’re planning to buy a vehicle this year? We interviewed three industry experts about the drivers of the shortage, its impact on auto brands and when we can expect to see inventory stabilize. 

What’s Driving the Vehicle Shortage?

The current global microchip shortage may be the elephant in the room, but according to Tyson Jominy, J.D. Power’s vice president of data and analytics, the inventory struggles can be traced all the way back to May 2020, when increased demand and COVID-related supply challenges first created a shortage among pickup trucks.

“The incentives were kept on a little too high and a little too long,” Jominy said. “As we came into May, we were still running a lot of the 0%, 84-month offers, so the APR [annual percentage rate] support was very strong. It became apparent that we should have backed off. By the time we got to the end of May, pickup inventory was very much depleted.” 

Before the industry was able to get back on its feet and replace diminishing inventory, a burgeoning microchip shortage layered on another supply shock. The chip shortage has disrupted production for every major auto brand, and a supply issue of this magnitude is uncharted territory. That’s according to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. 

“There hasn’t been one component that has hampered this many companies and products,” Fiorani said. “It touches so many parts of the car, from power controllers to navigation, to power seats, everything like this has a semiconductor in it. It can stop everything. Any one of them can be a linchpin that brings everything down.” 

Vehicle manufacturers aren’t only competing against each other for microchips, but also players in other industries, namely, consumer electronics. 

Stephanie Brinley, principal automotive analyst at IHS Markit, explained: “Demand for semiconductors for nonautomotive uses increased dramatically,” Brinley said. “In the third and fourth quarter of 2020, consumer demand for things like cellphones, laptops and video games skyrocketed as people worked and schooled from home. Demand for semiconductors grew far more rapidly than semiconductor manufacturers expected or could produce, creating a backlog of orders.”

Hardest Hit Vehicle Brands

AutoForecast Solutions estimates that the global semiconductor shortage will pull more than a million vehicles from planned production across Western Europe, Asia and North America in 2021, but some plants may be able to recover production as the chip shortage improves. Total vehicles permanently lost in North America will reduce production this year by about 600,000 units, the company expects. 

U.S. automakers bear the brunt of the inventory crisis, with the Detroit Three accounting for the top 10 models impacted, according to a tally of AFS data by Automotive News. As of mid-May, Ford was the most shell-shocked brand, with 325,000 vehicles lost, including nearly 110,000 units of the popular F-Series pickup truck, according to the newspaper. GM and Stellantis had to forgo 278,000 and 252,000 vehicles, respectively. Following the F-Series, the most impacted models are the Jeep Cherokee (98,584 units), Chevrolet Equinox (81,833 units), Chevy Malibu (56,929 units) and the Ford Explorer (46,766 units).

Is Help on the Way?

Automakers and the U.S. government are both working to address the shortages. While Ford has shut down production for some models due to the microchip shortage, automakers like Nissan and GM have continued to build vehicles, though without some components that require chips. Just last week, the U.S. Senate took a bipartisan step forward to fight the inventory crisis by passing a bill that invests in domestic microchip production, among other things. 

Automaker Workarounds 

In the meantime, automakers are getting creative to fill dealer lots, according to Brinley. 

“Automakers are prioritizing components needed for high-demand vehicles and adjusting availability of some features and options,” she said. “In some cases, vehicles are being produced without some key components and being held until the components are available.”

These components include features like navigation systems, which Nissan reportedly pulled from thousands of vehicles. GM has also taken the less-is-more approach to keeping production lines moving. First, the automaker reportedly removed an Active Fuel Management system from its full-size pickups, including the Chevrolet Silverado 1500 and GMC Sierra 1500, which resulted in a 1- or 2-mpg efficiency loss. GM also announced it would build some V-8 trucks and SUVs without an automatic stop-start feature

Although cutting features to keep vehicles in production offers some relief, it’s not a quick fix. GM still had to reduce production for the Silverado and Sierra along with the Chevy Equinox, GMC Terrain, Chevy Malibu and Cadillac XT4, according to an AutoForecast Solutions monthly report. 

Government Action

President Biden got involved early in the chip shortage, recognizing the geopolitical nature of the crisis but more action is needed to resolve the situation, according to Jominy. 

“The chips are primarily produced in China, and it’s harder for the U.S. to get the chips in general,” Jominy said. “China shut down sooner and came back sooner, so they were able to get the chips earlier than other parts of the world. Also, a lot of chips come from Korea, so who doesn’t have someone in their corner? The U.S. domestics.” 

Indeed, a 2020 report by Boston Consulting Group and the Semiconductor Industry Association notes that the U.S. now accounts for just 12% of global semiconductor production, down from 37% in 1990. (Though the two aren’t quite synonymous, semiconductors are often referenced interchangeably with microchips in the current crisis.)

As the first action step to address the shortage, the U.S. Senate passed a $190 billion legislation package to compete with Chinese tech, Reuters reports. According to the Congressional Budget Office, $54 billion will be allocated specifically to domestic production of semiconductor and telecommunications equipment, with $2 billion of that reserved for chips used by automakers. The bill still needs to pass the House of Representatives, where it reportedly faces a longer timeframe, but President Biden has voiced support to sign the bill into law.

When Will Inventory Return to Normal?

Brinley says we may never see inventory levels return to pre-COVID levels, but shoppers can expect to find more vehicles on dealer lots as the semiconductor situation improves. 

“Normal is also likely to change,” she said. “Automakers and dealers are working to adapt to a lower inventory level, as it has been an issue since mid-2020 for a number of reasons. However, relative to the semiconductor shortage, supply is expected to improve from mid-2021 forward and largely return to normal in the first quarter of 2022. Over the next eight months, the situation will gradually improve.”

According to Fiorani, it won’t be until the third or fourth quarter of this year before the industry hits the trough of the inventory problem, and vehicle inventory likely won’t return to full capacity until 2022. When asked if the shortage could extend into 2023, Fiorani says there’s no way to know how long customers will have to wait. 

“The problem is we’re in uncharted territory, like COVID was a year ago,” he said. “We don’t really know how deep this is and how soon we’ll recover.” 

Jominy expects the chip shortage will last another four months in a worst-case scenario but cautions that the residual effects on vehicle inventory will be felt much longer due to high demand. He estimates that the trough of the inventory will be around Labor Day, since summertime is normally the biggest car-selling season, and it started with a shortage. He also says the recovery efforts won’t materialize as increased inventory until the second or third quarter of 2022, and it’s unlikely consumers will see the incentives and deals they are accustomed to until such increases occur. 

What If I Need to Buy a Car Before 2022?

Patience and flexibility are virtues in the current car-shopping environment, while negotiating skills won’t do much good. 

“Consumers need to be patient shopping for a vehicle,” Brinley said. “It could take time to find the vehicle they want in a configuration that they are looking for, so be prepared to either wait or compromise. There are fewer incentives and discounts to be found, so expect to pay MSRP.”

Fiorani offers some candid advice to prospective car buyers, encouraging them to put off a car purchase if possible due to rising prices and lack of inventory. 

“It’s not a good time, historically, to purchase a new vehicle — or used vehicle for that matter, but if you have a vehicle to sell, it’s absolutely the time to do that,” he said, referring to the soaring trade-in values many consumers are now seeing. 

Jominy says only about half of car shoppers have experienced the new normal of the inventory shortage. For the ones who haven’t, he advises planning ahead, picking up the phone and speaking with the dealer to find a suitable option. 

“We still have 2 million units on the ground,” Jominy said. “Different brands are affected in different ways. Kia actually has more inventory than they had two years ago. If you are in the market, you can find something.” 

This is the time to cross-shop various brands and models, he added. Automakers have an average of six different SUV models on the lot, so being open to multiple vehicle options can pay off. 

More From Cars.com:

Cars.com’s Editorial department is your source for automotive news and reviews. In line with Cars.com’s long-standing ethics policy, editors and reviewers don’t accept gifts or free trips from automakers. The Editorial department is independent of Cars.com’s advertising, sales and sponsored content departments.

Latest expert reviews