This time of year, the average car dealership usually has up to 120 new vehicles on the lot. Some dealers are doing business with just three.
A global shortage of microchips began when the COVID-19 pandemic dramatically increased the demand for technology required for work-from-home. That was OK because demand for cars dropped off.
But now that demand is racing back, leaving manufacturers struggling to beef up supply of needed microchips. Microchips are essential to modern vehicles for a multitude of things, from backup cameras to comfort features.
Mangold Ford in Eureka and Barker Motor Co. of Bloomington are two of the many local dealerships dealing with this challenge.
Mike Mangold of Mangold Ford said there is a "perfect storm" that is preventing the distribution of new vehicles.
“The demand for new and used cars was maybe higher than they thought it was going to be than when things started in March and April. I think there were some natural disasters in Texas that messed up production. On top of that, one of the big plants in Japan burned down,” said Mangold.
He pointed to the Kentucky Speedway, where thousands of new Louisville-built trucks are sitting idled, rendered useless by the lack of microchips. A shortage of microchips was also cited by Rivian in the delayed launch of its first electric vehicles.
This bottleneck was actually preceded by a very prosperous time for the auto industry.
Andy Traeger of Barker said that was not only because of the stimulus checks, but the spending habits that people were forced into because of the pandemic.
“Interest rates were low across the board and extra cash was starting to pile up from staying in the house or not being able to eat out. If you’re staying home, then you’re not driving as much or spending as much on fuel. People decided it might be a good time to upgrade their vehicle or add another one,” said Traeger.
Valuable trade-ins
There are interesting side effects to the shortage. Mangold said the high demand for vehicles means a person who wishes to sell or trade their used car may be in a position to make much more in return than they normally would.
The lack of sales in new vehicles means that people are driving their older vehicles longer. That translates to more profit in the parts and service department, say dealers. While that may be a positive thing, it does not make up for the lost sales from new vehicles.
Mangold said it is difficult to keep vehicles on the lot for very long.
“They thought it would bottom out in July. But there have been a lot of people who had ordered cars before. A lot of the units coming in the next few months are pre-sold.”
Barker says that even if the demand for microchips were met, it may not fix the problem. Once the microchips are created, Barker says the manufacturers would enter a logistical hurdle.
“If, by some miracle, we had all microchips overnight, now we have to get them installed in the vehicles, and get those vehicles to the dealerships. And that may take some time.”
Going forward, Mangold said he is looking forward to the harvest season as the need for pickup trucks will increase.
