What is the chip shortage?

Supply chain shortages have become a hot topic since the pandemic. It’s become harder to get lots of things we used to take for granted—from gym equipment to toilet paper. If you follow the auto news, you’ve probably heard about the microchip shortage too. It’s had a pretty big impact on the industry, and on car prices too. Let’s take a look at what’s really going on out there.

what is the chip shortage?

Well, it’s just that. Microchips (also called semiconductors) are in a whole ton of everyday items and lately they’ve been in short supply. They’re the brains of a product—billions of them keep the world ticking every day.

The chip shortage has caused problems for countless industries and affected many products. And not just the obvious ones, like computers, PS5s, and iPhones. Even your electric toothbrush needs a microchip. According to the experts, there’s never been a shortage of this scale before.

why is it happening?

You guessed it—the pandemic. It caused the factories that make the chips to close down for months. At the same time, demand for electronic products shot up, as everyone depended even more on computers and tech to live and work. Now there’s a huge backlog while factories play catchup.

how does all this affect the automotive industry?

The auto industry is probably one of the worst affected industries. Car factories are stuck waiting for chips in order to keep manufacturing new vehicles. One problem is that lots of the factories that make microchips are now prioritizing newer contracts making chips for computer products and consumer goods (which are more lucrative to produce) rather than making chips for cars, which tend to use older “legacy” chips. In the US, up to 5 million fewer cars have been produced as a result.

what’s being done about it?

Chip manufacturers are increasing their capacity to try and meet demand, so at some point they will slowly catch up with the backlog. As demand drops off for consumer goods, the factories are switching back to making chips for the auto industry.

As for the car manufacturers, some are prioritizing the most in-demand vehicles and dropping off the less popular ones. Tesla just adapted its software to accommodate different chips (and they’ve managed to keep production rolling pretty well).

when will it end?

There’s not a simple answer, but the chip shortage is expected to have repercussions for some time still. It should ease up by the end of 2022, but it could take until 2023, or beyond, before the automotive industry recovers completely.

is it impacting car prices?

It sure is. With cars in short supply (and gas prices pumping up too) the price of cars is rocketing. The average sales price of a new car is up 17.5%, according to a report from July ‘22. And sales are down between 15-20% depending on the manufacturer.

The chip shortage is having its biggest impact on the production of new cars. But as demand for vehicles increases, second-hand car value is shooting up in price too. If you’re thinking about selling your old car—now is probably a good time to do it.

If you’re wondering what sort of price you could get, check out Peddle. We’ve got a great instant offer tool. Just share a few details about the car make, model, age, and we’ll give you a quote in minutes. You don’t even have to call us.