What is the Reason Behind Vehicle Shortage in the Market?

Blog Jul 15th, 2022

When the global pandemic hit the world in 2020, automakers across the globe cancelled or reduced their orders for semiconductor microchips, assuming the demand for vehicles would fall due to economic disturbance. In fact, the need for these microchips shifted from the automobile to the technology industry to manufacture more computers, video games and smartphones, fulfilling the work-from-home demands. And all this consequently resulted in vehicle shortages worldwide. Let’s dig a little deeper to understand what semiconductor microchips are and how they affect the automotive market.

What are Semiconductor Microchips?

As the name suggests, semiconductors are silicon-like materials that conduct and insulate electricity. Depending on the model, type and amenities, a single vehicle may need up to 1,500 microchips to offer a desirable on-road performance. From a car’s infotainment system to safety sensors to the air-conditioning system, semiconductor chips are part of most cars’ systems, ensuring a smooth operation.

Why There’s A Lack of These Microchips for Vehicles?

COVID is obviously the significant reason behind the shortage of semiconductor microchips globally, but it also resulted in other reasons why there aren’t enough of these chips. The deficit began on the manufacturing side when factories stopped producing semiconductors chips and reduced the workforce as one of the COVID repercussions.

Furthermore, the imbalanced supply and demand chain also plays a major role in the shortage. Though the automotive industry accounts for only 10% of semiconductor microchip usage, the growing demand for new vehicles and technological advancements is outpacing the available microchip numbers. It takes 26 weeks for a microchip to actually get to a car manufacturer, which is one of the reasons why companies are closing pre-orders or bookings.

What Are The Major Effects of Vehicle Shortage?

As the world is finally attaining some normalcy with offices, workplaces, schools and colleges reopening, the demand for cars is gradually increasing. Because of the unavailability or late availability of microchips, it's taking longer than the average to manufacture new vehicles, meaning individuals need to settle with pre-owned vehicles available in the market. The limited inventory of new and used cars also result in higher car price than the average to maintain the supply and demand change.

The automobile is a dynamic industry that will eventually find ways to deal with this scarcity, especially with new microchip plants in manufacturing and how fastly all sectors are recovering from COVID setbacks. But if you’re looking to buy a new or used vehicle, don’t worry because the Oxford Dodge dealership has got you covered. We still manage a comprehensive inventory of Dodge, Chrysler, Jeep and Ram vehicles. Visit our showroom in London, Ontario or give us a call to learn more.