Why new car buyers are spitting chips

The car industry is struggling through a critical shortage of semiconductors, resulting in a shortage of new cars around the world.

Today’s new cars need 30 to 50 semiconductors, or computer chips, supplied by up to 10 companies, and a problem with the supply of one chip worth 10 to 15 cents is enough to halt production of an entire factory.

Chips are needed for everything in a new car: infotainment touchscreens, autonomous emergency braking, stability control, adaptive cruise control, airbag deployment and more.

With new cars in short supply, the ones that are available are generally the highest-margin models, as makers try to recoup as much money as they can from limited production.

Can I still buy a new car?

Of course. Car makers have put their chips into their most expensive baskets, so premium versions of most models will usually be available. But expect delays in deliveries.

You can also expect some high-end equipment to go missing from some models, with such “decontenting” already happening in Australia at Mercedes-Benz, BMW and others. What about used cars?

A byproduct of the semiconductor crisis is that prices of used cars have skyrocketed to record levels, especially for sought-after models. But because the value of near-new used cars is strong, it’s a good time to sell one if you have a replacement on hand. What have car makers done? They’ve begged and borrowed and juggled the chips they have to build the cars they can, and in some cases idled factories. It just takes one missing chip out of 40 or 50 to leave otherwise-complete cars piling up.

In the US, Ford has thousands of incomplete F-Series pick-up trucks parked in paddocks awaiting chips. Mini, Jaguar Land Rover, MercedesBenz, Toyota, Hyundai, Mazda and Stellantis have all closed plants due to the lack of chips.

Car makers are ramping up production of their own chip factories and chip makers are increasing their automotive production, but some executives predict it will be early 2023 before things are back to normal. Why can’t they use other chips? They don’t fit and they’re not strong enough. Automotive-grade chips are designed to operate between -40 and +50°C, with all kinds of vibration and electrical interference tests. There are car makers being quoted 30 times the pre-Covid price for their chips, because chip makers would need to reconfigure their production to automotive.

How did they mess that up?

Every car maker operates on a version of Toyota’s just-in-time production model, so when China and Europe shut down for Covid, so did their factories. The systems don’t allow for huge backlogs of spare parts, so they called suppliers and hit pause. When the car makers called to ask for their chips again, they had dropped to the back of the queue, as chip makers had pivoted to the smartphones, gaming consoles and computers that were in demand during lockdown and deliver higher profit margins.