I am sure everyone has heard about the semiconductor or “microchip” shortage that is plaguing not only the automotive industry but the entire tech world at the moment. But we wanted to take a few moments to look at some of the peripheral effects that are occurring downstream in the automotive market because of it.
Many of the auto manufacturers have realized that the best way to allocate the microchip supply is to focus on the vehicles that have the most margin. This means the pickup truck, sport-utility vehicle (SUV), along with a few crossovers are generally getting priority in production as components become available. This means that vehicle inventories are dwindling fast on the nonpriority vehicles and production is slowing even quicker than originally thought.
We have seen dealers selling allocation of vehicles that are only in partial production (VON-issued vehicles in Stellantis lingo). Unfortunately, the proverbial pickings are getting slim, and discounts on new cars are getting harder to find. For that matter, we are starting to see market adjustments being added to vehicles that are popular but are hard to get like the Challenger SRT Super Stock.
Additionally, the used market for popular vehicles has exploded. MoparInsiders has seen reports of Hellcat and Scat Pack trade-in values increasing anywhere from $5,000 to $10,000 over the last month. Social media reports with pictures of trade-in offers are astounding. Recently a friend of mine traded in his Hellcat simply because it was a deal he couldn’t pass up. He is now planning his next move with a great down payment ready for the next project. I have even begun to consider selling my Charger SRT392 because the inflated trade-in value is hard to pass up. We have even seen Carmax offers on four and five-year-old 392 cars that are nearing $40,000. It is truly a seller’s market.
However, the lack of inventory has a trickle-down effect on dealers. MoparInsiders is already seeing reports of dealers focusing on used vehicles and workforce reductions. Less new car sales can also lead to strain on the service side of the dealership with a slowing of work. The trickle-down effect is real, and we firmly believe the situation very well could get worse before it gets better.
While many have focused on the auto industry, the issues are across many industries. We have seen reports of microchip shortages on everything from general use Programmable Logic Controllers (PLC), to even radio systems used for cellular phones, and WiFi. If the general industry uses PLCs and other electronics that are in shortage (and that’s nearly every industry), getting replacement parts could lead to additional plant shutdowns and reductions in the workforce.
How long will this last? Analysts on TV, radio, and newspapers are saying this could last two to three years. If that is the case, what will the tipping point be? Will manufacturers pay more to get the needed chips to keep production going? Will the extra cost be so excessive that they must pass it on to the consumer? I believe the answer to both those questions is YES, but I do not think we will see that for some time.
In the meantime, the potential reduction in force from the plant production level all the way down to the dealership level could be very hard on the industry and could last longer than the chip inventory shortage itself. We will continue to monitor this story with hopefully light at the end of the tunnel and less gloom in the future…