The Tiny Chip That Is Sparking Big Problems

It may only be slightly bigger than the size of a quarter, but the coin sized semiconductor chips are putting a pause on vehicle production across America. This standstill is putting dealerships, and in turn consumers, into a frenzy. With nearly no new inventory, dealership lots are near barren and the used car market is astronomical. So what exactly is the importance of this car chip and how does this impact you as a car owner?

We have gathered some information to help you make the best financial decision in a time of mass confusion within the auto industry. Keep reading to find out how exactly this car chip shortage might impact your decision to buy, sell, or even just maintain your car.

What Is a Semiconductor Chip?

These car chips, technically known as semiconductor chips, are tiny transistors made from silicon. Cars–just like computers, smart phones, and appliances–use these chips to function; they control aspects such as the infotainment system as well as power steering and brakes. So, it’s safe to say these small chips are vital to the production of cars today.

Not only are these chips necessary for your car to run, but It also takes more than one chip per vehicle for these controls to properly operate. Depending on the car, it could have hundreds of semiconductors, if not more. To give you a ballpark of just how many chips a car can have, experts at AlixPartners say the typical car has around 1,400 chips. This number only increases for higher-priced vehicles that have advanced safety and infotainment systems.

Why Is There a Shortage?

You may be wondering, if these chips are so important to the car industry, what caused the shortage in the first place? Like most shortages in the nation, the car chip shortage is a result of COVID-19. When the pandemic hit, there was an increased demand for personal electronics such as cell phones and laptops as more people were working from home or looking for more ways to keep occupied during quarantine. Like mentioned earlier, cars use the same chips as these devices and demand was so strong they couldn’t keep up with production.

In the height of the pandemic, automakers, suppliers, and dealerships were also prompted to shut down as we entered the beginning of a recession.

Automakers, who have previously been hit by recessions, quickly canceled orders for parts such as semiconductor chips in belief that sales would plummet. Which they did initially. However, this quickly changed when there was a surge of pent up demand,  influx of 0% financing offers, and the logistics of at home sales with free pickup or delivery. Sales began to pick up again. In fact so much so that manufacturers weren’t equipped to supply the demand. Leading to the car chip shortage.

Why Can’t They Just Make More Chips?

To make a much more long, complicated story short, making semiconductor chips is extremely complex and only getting more difficult. The main manufacturers of these chips are located in Asia and are facing influxes of their own; there aren’t enough materials available to meet the demand. Beyond that, it can take up to three months for a single chip to be created due to the intense process which involves giant factories, dust-free rooms, multi-million dollar machines, molten tin, and lasers. There is no simple solution to this shortage, and the effects are already taking place in dealerships across America.

Effect on Car Dealerships

With the car chip shortage leading to manufacturers shutting down, dealerships across the nation are nearing empty. With few new cars in stock, they are actively seeking used cars to be able to stay afloat. So if you are looking to sell a used car, now is a great time because they are going for far more than the typical price point. However, while you may be making money from your sale, you will most likely be putting it all back into another car, plus some. Car prices right now are astronomically high, so it may not be worth it.

How Does the Car Chip Shortage Affect You?

For those who are happy with their current cars or in no need of a new (or new-to-them) car, the car chip shortage doesn’t really affect them; unless they have a vehicle they were wanting to sell, the time would be now. However, those who are in the market for a new car will definitely face an impact. Since the new car choices are slim and used prices are so high, buying is not something you want to jump into without thought. According to a report by CNN,  the average used car price hit $26,500 in June, up 27% from a year ago, while the average new car transaction price is $41,000, up 5%, virtually the same as the average sticker price of $41,500. It’s even reported that people are paying as much as two-thirds over the sticker price for cars right now.  These prices don’t even include the rise in personal property tax and insurance prices that will result from these inflated prices.

If you can afford and are set on buying a new car, the option is still available for you. If you are in the other half of the market who is looking to replace an older or damaged car, but can’t necessarily afford the steep prices right now, it will save you money to just get your car repaired. There are thousands and thousands of dollars worth of things that are NOT wrong with the car you have, so why spend $20,000 on a $2,500 problem?

Here are some more things to consider if you’re deciding between buying a new car or maintaining and repairing your current:

  • Even if your car has a $3,000 or $7,000 repair that is a one time payment to solve the problem; whereas that would only be a down payment for a new car.
  • Insurance and registration fees will also be higher on a new car.
  • New cars typically lose an estimated 22% of their value after the first year; your car has already taken that depreciation hit.
  • Routine maintenance and repairs will help your car last longer so you can save money without having to worry about hasty purchases or monthly car payments.
  • You may have a sentimental attachment to your car; whether it was a gift or a family car passed down, it can be hard to say goodbye.

Want to Make Your Car Last?

If you want to avoid the price increase from the car chip shortage or you aren’t ready to part ways with your car just yet, let Master Auto Repair of Webster Groves help you make the right decision. We’ll perform a thorough evaluation and give you great advice in your consultation.

We offer services ranging from routine inspections to pre-purchase evaluations, so whether you’re looking to buy new or maintain your current vehicle Master Auto Repair of Webster Groves has you covered! Call (314)-843-0090 or visit us online to schedule an appointment today!