Global Microchip Shortage Makes Now the Time to Shop for Cars

Just as the automobile industry is recovering from coronavirus pandemic slowdowns that limited production and raised prices at dealerships, a new consequence of the pandemic threatens to limit consumer choices and boost prices again: a global shortage of microchips, on which even the simplest of today’s new vehicles rely. Cars.com data reflects that slowdowns at many automaker assembly plants are already resulting in diminished inventory on dealer lots, and prices are also beginning to rise.

Cars.com’s editors endeavor to alert shoppers of the best times to buy. In most cases that’s when prices are low or specific deals are to be had. This is not one of those times. In this case it simply appears that selection will be limited and prices are likely to be higher, so anyone who’s in the market or was thinking about it should probably shop now.

Here’s what happened last week that convinced us the situation will worsen before it improves:

  • GM, which had seemed immune to the chip shortage, announced Wednesday that it would slow or cease production at four assembly plants this week.
  • IHS Markit warned that the “automotive chip famine” could last into the third quarter of 2021, an extension of its earlier forecast.
  • A group of 15 U.S. senators pressured the Biden administration to step in.
  • Closely watched Cars.com data confirmed the effects of earlier shutdowns.

What Our Data Shows

One of the first North American production cutbacks, reported in the second week of January, involved the 2021 Toyota Tundra full-size pickup losing a thumb-wrestling match with its sibling: Soon to be replaced by a new generation, the Tundra shares its San Antonio, Texas, assembly plant — and a scarce microchip — with the 2021 Tacoma mid-size pickup. Toyota cut the Tundra’s production by 40% for the rest of January, according to Automotive News, and favored the Tacoma.

Cars.com data shows an overall drop in dealer Tundra inventory of almost 27% for the month but an average price increase of only $133 (0.3%). This represents a rapid drop in inventory for a short period; scarcity-induced price increases typically take time to register.

In instances of price increases following production cuts, the cause may be anything from scarcity driving prices upward to a change in the equipment mix based on what the manufacturer chooses to build. It stands to reason that automakers will favor their loaded and most profitable models when limiting production — should chip availability allow it. Whatever the reason, the end result is higher overall prices.

To wit, Tacoma inventory is down only 4% for the same period, but prices are up $584 (1.6%) on average. This reflects an inventory increase of the more expensive TRD trim level (3.5%) and a 15.4% decrease of the more modest SR5 trim, with an accompanying average price boost of 1.6%.

This suggests the pickup truck model that was spared outright production cuts has itself seen enough changes to affect availability and pricing of some versions, and we expect to see more of this phenomenon throughout the automotive market in the coming months. In short, we predict unpredictability. Inventories of the other models known to be affected by production cuts were down only about 3% on average for January, with prices essentially flat, but we consider the Tundra and Tacoma example a bellwether and will continue tracking the market.

IHS Markit predicts that 672,000 fewer light vehicles will be produced globally in the first quarter of 2021 than previously forecast.

Which Models Are Affected?

Manufacturers aren’t trumpeting these struggles from the rooftops, but we learn about them when assembly workers are idled. BMW, Mercedes-Benz and Volkswagen were among the first automakers to report shortages and idled production overseas, which is likely to affect some imported models. North American factories that have reported past or future slowdowns produce these U.S. models:

Ford Motor Co.

GM

Honda Motor Co.

Nissan Motor Co.

Stellantis

Subaru

Toyota Motor Co.

Volkswagen

What’s a Chip, and Why the Shortage?

Chip is short for microchip, a catch-all term for an integrated circuit, which can represent more recognizable items like RAM, ROM, microprocessors and such. (The word semiconductor is being used interchangeably with chip in reporting about the shortage, even though its core meaning is simpler.) Even the simplest car can employ a dozen or more chips in everything from antilock braking systems and engine computers to in-dash displays. Unfortunately, virtually all other electronic products also use these chips, and suppliers are overtaxed, primarily due to the pandemic. With people staying home — and, notably, working and schooling from home — demand has exploded for computers and other consumer electronics. Companies that produce these items contracted with chip suppliers during the initial wave of COVID-19 when car sales contracted. When car sales rebounded, chip manufacturing capacity had been snatched up by other customers — and simultaneously was constrained by mid-summer Trump administration sanctions on some Chinese suppliers for alleged labor and human rights abuses.

Bear in mind that most vehicles are built using just-in-time manufacturing techniques, whereby all the parts and subassemblies arrive from their various suppliers just in time to be built onto the vehicle. Assembly plants do very little stockpiling, even of small parts like chips, so if any necessary part becomes unavailable, the whole line shuts down — unless the missing chip is associated with an optional feature that can simply be omitted.

The use of the general term “chip,” and our example above of two Toyota models that use the same device, suggest interchangeability that doesn’t reflect reality. The devices in question are often proprietary, and even the major players like Bosch that supply many brands have fallen prey to the shortage.

According to IHS Markit, a microcontroller that typically takes 12 to 16 weeks to manufacture will need lead times of 26 weeks and even up to 38 weeks for in-demand components. Additionally, the organization says, lead times for nearly all chip types are one to two months longer than normal.

Their complexity and the exacting conditions of their manufacture means microchip production isn’t scaled up quickly or inexpensively, so relief isn’t as close as it might be for simpler components.

The European Union, the U.S. and other nations are scrambling not only to secure short-term solutions but to improve their self-reliance in the area of microchips.

What Shoppers Can Do

While we can’t predict exactly how this chip shortage will affect specific models or even trim levels, we do predict unpredictability for the models listed above — and beyond. Here are steps shoppers can take:

  • Investigate now. As we’ve stated, specific predictions are difficult, but buying sooner rather than waiting can help mitigate the following pitfalls.
  • See what’s available, and if there’s plenty of the vehicle you’re interested in for sale, there’s less reason to rush. But if choices are few, chances are that it will get worse before it gets better. Note that “plenty” can be deceiving. Twenty vehicles in your area might seem like a lot, but if the model is the popular F-150, those could be gone in a heartbeat. Monitor the situation over a few days or weeks.
  • Prepare to widen your search radius to find exactly what you want.
  • Don’t expect as many incentives, which are a tool manufacturers use to keep inventory moving. When supply is thin, incentives dry up.
  • Don’t be surprised if prices increase, at least on some models, due to diminished supply. Expect used-car prices to remain relatively high as well. When new-car production slowed early in the pandemic, shoppers shifted to used vehicles, shrinking supply and boosting prices. The chip shortage is another factor that’s likely to sustain this trend.
  • If you’re not in a hurry, it’s OK to wait. Forecasters predict that the industry will make up the production shortfall by the end of the year, meaning selection should improve, though price trends are difficult to predict.

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Editor’s note: This story was updated Feb. 10, 2021, to add more models affected by plant shutdowns due to the chip shortage.

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.

 
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