A MICROCHIP is a tiny part in a car but it has now caused big ripples in the auto industry worldwide. It has caused vehicle shortages worldwide.
When you buy a car, there are certain components that you do not care about but without them a car cannot function. One of them is a microchip also known as a semiconductor chip.
It serves as the “brain” of modern electronics. It is the brain of the car. Microchips control everything from window motors to navigation systems, and the auto manufacturing industry has been hard-hit as chip shortages have caused production slowdowns.
For consumers hungry for new cars, that means fewer are available. Buying a car right now — whether new or used — is more difficult than usual.
Manufactured from silicon, these highly engineered components are essentially a type of electric circuit. They include a series of transistors that function as tiny switches to control the flow of electrons.
Today’s cars are computers on wheels. Even an inexpensive new car can contain more than 100 microchips, powering everything that you can think of. Luxury cars, with their more advanced entertainment and comfort technologies, can use more than 3 000.
Such is their ubiquity in today’s electronically overloaded automotive offerings. Close to a trillion microchips were produced in 2020, for use in every imaginable electronic device.
Semiconductors can be found in smartphones, televisions, internet routers, home climate control thermostats, and myriad other devices. Cars and trucks are now loaded with electronics, so they have them, too.
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Now imagine the demand worldwide for semiconductor microchips.
During Covid, manufacturing of microchips was affected. Production plummeted. It is now picking up but it will take maybe another year or so for things to be back to normal.
The shortage cost the global auto industry about US$210 billion in lost revenue in 2021. No single cause accounts for the microchip shortage.
Covid-19 has had an outsized effect on the problem, as factories and ports closed while millions of people worldwide established home offices. But other contributors include labour shortfalls, lack of raw materials, trade tensions, and the growth of 5G electronics, which require more chips than previous generations of devices.
When the world was shut due to Covid, demand for microchips grew as well because demand spiked for computers and other electronic devices due to people working from home.
Demand for home entertainment grew as well. When auto factories got rolling again and sales picked up in a big way toward the end of 2020, microchip manufacturers were unable to keep up with the surging demand.
The world will have lost 11,3 million units of production in 2021 because of the chip shortage. The impact could be another seven million units in 2022 and 1,6 million in 2023, according to IHS forecasts.
In some countries, manufacturers like Ford suspended operations at some plants to focus efforts on truck assembly, where the margins are better.
Mercedes-Benz is prioritising the expensive models because that is where bigger profits are made whilst lower priced models like the C-Class might not be prioritised.
Porsche warned dealers that customers might have to wait an extra 12 weeks to get their cars, because they lack a chip used to monitor tire pressure. The French automaker Peugeot, part of the newly formed Stellantis auto making empire, has gone so far as to substitute old-fashioned analogue speedometers for digital units in some models.
For the automotive industry in particular, this challenge has been complicated by the fact that as regulatory and consumer pressures make cars ever smarter, they rely on a growing number of electronics.
At the same time, the industry only uses 5% to 10% of annual semiconductor production; most chips go to consumer electronics. Once car companies began to restart idle assembly lines and ramp up production, they found themselves at the back of a long queue.
If you have been on the market for your favourite Toyota Hilux, Nissan Navara, Ford Ranger, Haval P Series, you probably have been told that, “I’m sorry, dear customer. I can’t give you anything.”
You end up having to buy a brand you had not intended to. Its vicious cycle, the more popular brands will be difficult to get. One will end up trying the Mitsubishi bakkie if its available and realise it’s just as good as the Toyota Hilux and might never come back.
It will encourage brand switching and affect brand loyalty as car shortage is not affecting every model the same way, so consumers can take advantage of the forgotten corners of the auto market. It really pays to do a lot of research before you commit to anything.
Finally, when necessary, car manufacturers are simply delivering products without the full array of features. A rear-view camera might ship without augmented reality; USB ports might be missing, or hands-free driving limited. This final option, though, is often paired with the possibility of component installation down the line.
Some have removed the fuel-saving cylinder deactivation feature from their bakkies for the time being. This may mean that some features you are seeking could be harder to find.
And it makes it important to verify that the model you are buying is truly equipped with the features you want. You need to ask the salesman if any features were left out due to chip shortages.
Companies like Intel, are looking to both redesign semiconductors to be less dependent on certain critical resources while also building new fabrication plants in their countries.
The United States of America is one of them. A vast majority of chips are made in Taiwan. This “reshoring” is happening not only in the USA but in regions around the world hit by the microchip supply shock. Like they say necessity is the mother of inventions the world is now forced to find ways of coming up with ways of replacing microchips.
This shortage has tilted the car market into a seller’s market. This is a good time to sell a car if you’re not using it much. Rising prices and reduced availability of new cars have pushed many consumers toward used cars, making them scarcer and more expensive as well.
So, next time you walk into a dealership, know that you might not get that favourite vehicle you want. All the same, explore and shop around. You might come across another brand that you might actually enjoy.