Chip Shortage Delays Lower Auto Prices Until 2023
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Nissan, which had announced in mid-August that chip shortages would force it to close its immense factory in Smyrna, Tenn., until Aug. 30, kept the plant closed until Sept. 13.
And Honda dealers are bracing for fewer shipments.
“This is a fluid situation that is impacting the entire industry’s global supply chain, and we are adjusting production as necessary,” said Chris Abbruzzese, a Honda spokesman.
The result is that vehicle buyers are facing persistent and once-unthinkable price spikes. The average price of a new vehicle sold in the U.S. in August hit a record of just above $41,000 -- nearly $8,200 more than it was just two years ago, J.D. Power estimated.
With consumer demand still high, automakers feel little pressure to discount their vehicles. Forced to conserve their scarce computer chips, the automakers have routed them to higher-priced models -- pickup trucks and large SUVs, for example -- thereby driving up their average prices.
The roots of the computer chip shortage bedeviling auto and other industries stem from the eruption of the pandemic early last year. U.S. automakers had to shut factories for eight weeks to help stop the virus from spreading. Some parts companies canceled orders for semiconductors. At the same time, with tens of millions of people hunkered down at home, 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, just as auto chip production started to rebound in late spring, the highly contagious delta variant struck Malaysia and other Asian countries where chips are finished and other auto parts are made.
In August, new vehicle sales in the U.S. tumbled nearly 18%, mainly because of supply shortages. Automakers reported that U.S. dealers had fewer than 1 million new vehicles on their lots in August -- 72% lower than in August 2019.
Even if auto production were somehow to immediately regain its highest-ever level for vehicles sold in the U.S., it would take more than a year to achieve a more normal 60-day supply of vehicles and for prices to head down, the consulting firm Alix Partners has calculated.
“Under that scenario,” said Dan Hearsch, an Alix Partners managing director, “it’s not until early 2023 before they even could overcome a backlog of sales, expected demand and build up the inventory.”
For now, with parts supplies remaining scarce and production cuts spreading, many dealers are nearly out of new vehicles.
Some tentative cause for hope has begun to emerge. Siew Hai Wong, president of the Malaysia Semiconductor Industry Association, says hopefully that chip production should start returning to normal in the fall as more workers are vaccinated.
Though Malaysia, Vietnam, Taiwan, Singapore and the United States all produce semiconductors, he said, a shortage of just one kind of chip can disrupt production.
“If there is disruption in Malaysia,” Wong said, “there will be disruption somewhere in the world.”
Automakers have been considering shifting to an order-based distribution system rather than keeping huge supplies on dealer lots. But no one knows whether such a system would prove more efficient.
Eventually, Hearsch suggested, the delta variant will pass and the supply chain should return to normal. By then, he predicts, automakers will line up multiple sources of parts and stock critical components.
“There will be an end to it, but the question is really when,” said Ravi Anupindi, a professor at the University of Michigan who studies supply chains.
AP Writer Yuri Kageyama contributed to this report from Tokyo.