TOLEDO, Ohio (AP) — Back in the spring, the shortage of computer chips that drove up auto prices appeared to be, at last, easing. Consumers seem to be getting some relief.
That hope has now faded. The rise in COVID-19 cases from the Delta variant in several Asian countries, which are the main producers of auto-grade chips, is exacerbating the supply crunch. This is further delaying the return to normal auto production and keeping the supply of vehicles artificially low.
And that means, analysts say, that record-high consumer prices for vehicles — new and used, as well as rental cars — will extend over the next year and may not return to Earth until 2023.
The global parts shortage includes not only computer chips. Automakers are also seeing a shortage of wiring harnesses, plastic and glass. And beyond autos, critical components for goods ranging from agricultural equipment and industrial machinery to sportswear and kitchen wares are also bottled at ports around the world as supply surges in the face of a resurgent virus situation.
“It appears it’s going to be a little harder before it gets easier,” said Glen Mears, who runs four auto dealerships around Canton, Ohio.
Due to a shortage of parts, General Motors and Ford have announced a week or two of closures at several North American factories, some of which produce their hugely popular full-size pickup trucks.
Late last month, shortages in semiconductors and other parts became so acute that Toyota was forced to announce that it would cut production in Japan and North America by at least 40% for two months. The cuts meant a worldwide reduction of 360,000 vehicles in September. Toyota, which largely avoided sporadic factory closures that plagued rivals this year, now anticipates a production loss in October.
Nissan, which announced in mid-August that chip shortages would force it to close its sprawling factory in Smyrna, Tennessee, by August 30, now says the shutdown will last until September 13.
And Honda dealers are gearing up for fewer shipments.
“This is a fluid situation that is affecting the entire industry’s global supply chain, and we are adjusting production as needed,” Honda spokesman Chris Abbruzze said.
The result is that vehicle buyers are facing frequent and once unimaginable price spikes. J.D. Power estimates the average price for a new vehicle sold in the U.S. in August to hit a record high of more than $41,000 — roughly $8,200 more than it was two years ago.
With consumer demand still high, automakers feel little pressure to discount their vehicles. Forced to preserve their scarce computer chips, automakers have routed them for higher-priced models — pickup trucks and larger SUVs — thereby raising their average prices.
The roots of computer chip shortages stem from the explosion of the pandemic early last year in the auto and other industries. US automakers had to close factories for eight weeks to help stop the virus from spreading. Some parts companies have canceled orders for semiconductors. Also, with millions of people living in their homes, the demand for laptops, tablets and gaming consoles skyrocketed.
As auto production resumed, consumer demand for cars remained strong. But chip makers had shifted production to consumer goods, creating a shortage of weather-resistant automotive-grade chips.
Then, as auto chip production resumed in late spring, the highly contagious Delta version affected Malaysia and other Asian countries where chips were expired and other auto parts made.
In August, sales of new vehicles in the US fell about 18%, primarily due to a lack of supply. Automakers reported that US dealers had less than 1 million new vehicles in their lots in August — 72% less than in August 2019.
Even if auto production somehow quickly regains its highest level for vehicles sold in the US, it will be difficult to get a more typical 60-day supply of vehicles and with prices falling. For this, consulting firm Alix will take more than a year. The partners have calculated.
“Under that scenario,” said Dan Hersch, managing director of Alix Partners, “it’s not until early 2023 before they can build up sales, expected demand and inventory.”
For now, with parts supplies dwindling and production cuts spreading, many dealers are almost out of new vehicles.
On a recent trip to the “Central Avenue Strip” in suburban Toledo, Ohio, some new vehicle lots can be found on a street full of dealerships. Some dealers filled their lots with old vehicles.
With supplies so short and prices so high that there would be a buyer, Heather Pipelo of Adrian, Michigan, said she didn’t even bother to look for a new SUV at Jim White Honda.
“It’s more than I paid for my house,” she said sadly.
Ed Evers of Mansfield, Ohio, made the nearly two-hour trip to a Toledo-area Subaru dealer to buy a used 2020 four-door Jeep Wrangler. He considered buying a new one but decided that a used vehicle to replace an older Dodge Journey SUV was overpriced.
Mears, whose Honda dealerships are running short of new inventory, said dealers are managing to survive due to the high prices consumers have to pay for both new and used vehicles.
It doesn’t charge more than the sticker price, he said — enough profit to cover expenses and make money. Neither does he have to advertise that much nor does he have to pay interest on large stock of vehicles. He said that many vehicles are sold before they come from the factory.
Chip orders placed nine months ago are now starting to arrive. But other components, such as parts made from glass or plastic injection molds, have been exhausted, Hersch said. Due to the virus and general labor shortages, he said, auto-parts makers may not be able to make up for lost production.
Some temporary reasons for hope are beginning to emerge. Sew Hai Wong, president of the Malaysia Semiconductor Industry Association, says chip production is expected to begin to normalize in the fall as more workers are vaccinated.
Although Malaysia, Vietnam, Taiwan, Singapore and the United States all produce semiconductors, he said, a lack of just one type of chip could hamper production.
“If there is a disruption in Malaysia,” Wong said, “there will be a disruption somewhere in the world.”
Automakers are looking at shifting to an order-based delivery system instead of keeping bulk supplies at dealer lots. But no one knows whether such a system would prove more efficient.
Eventually, Hersch suggested, the delta version will pass and the supply chain should return to normal. Until then, he predicts, automakers will line up multiple sources of parts and stock critical components.
“It will end, but the question really is when,” said University of Michigan professor Ravi Anupindi, who studies supply chains.
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