As we all know, the chip shortage has caused a significant decline in our industry, and unfortunately, it’s not going away anytime soon. The percentage of new vehicles shipped to Canadian dealerships was down by almost 30% in February 2021 compared to February 2020. So why is this happening and what does this mean for the future? In this article, we’ll break down everything you need to know about the chip shortage that’s affecting the automotive industry on a global level.
The “chip shortage” that everyone is talking about in our industry is called a semiconductor chip. For several reasons, the production of these semiconductor chips has declined globally. It’s not uncommon for new vehicles to be powered by up to 3,000 semiconductor chips as they power everything from the infotainment system to the fuel injection system.
Despite what most of us in the automotive industry like to think, relative to the gaming and cellphone industry, we’re quite small. Because of this reality, both the gaming and cellphone industry have gotten access to the already diminished supply of chips, leaving the automotive industry picking up the scraps.
To put it simply, Covid-19 has been the biggest reason we’re facing a global chip shortage, but it’s not the only reason. Many chip factories have had to temporarily close due to Covid outbreaks, which was also compounded by the shipping delays.
Outside of Covid, three semiconductor factories were temporarily shut down due to the massive storms in Texas that took place in February 2021. Taiwan is responsible for producing 10% of the world’s semiconductor chips, and when it faced a severe drought earlier this year, many of the factories were also temporarily shut down.
While there are some signs that there’s light at the end of the tunnel to end the chip shortage, it may not happen any time soon. The White House held a summit months ago where they discussed a plan to put billions of dollars to stimulate chip production. This discussion ended up being counterproductive as many of the owners of chip production factories held off on making more factories with their own money, hoping the government would make the factories for them. This has only further delayed semiconductor chip production.
How the chip shortage will affect your dealership depends on a few things. This is because the chip shortage has affected production unevenly across different countries, makes and models. Car and Driver stated that Volkswagen and Hyundai have been impacted particularly hard compared to other makes. Two models that are also being hit particularly hard by the shortage are the Ford F-150 and the Jeep Cherokee.
What most dealerships are doing to respond to this shortage is double down on their used car inventory. Well unfortunately this isn’t an easy thing to do right now either as used car sales have been on a decline since the beginning of the pandemic. The thought behind the dip in used car sales is mostly attributed to the fact that due to the unwillingness of taking public transportation, more people refrained from selling their vehicles.
Because of the lack of used vehicles on the market, your dealership needs to be bolder in how it deals with used vehicles. At Autocorp, we have a tool that can help you grow your used vehicle inventory. AVA Trade is an interactive trade tool powered by Kelly Blue Book that allows your online shoppers to value their current vehicle in seconds. Seamlessly integrated with AVA Credit, turning online visitors to fresh trade-in & credit leads for your dealership. Book a demo on AVA Trade today!
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