“No End in Sight” for the Computer Chip Shortage Affecting the Automotive Industry
ALLENDALE, Michigan – A recent report from a nonprofit in West Michigan found frustration on the rise among auto industry players as they continue to face an ongoing shortage of computer chips .
In its September 2021 issue, the Institute for Supply Management-Greater Grand Rapids wrote that there was “no end in sight” to the national crisis affecting customers, dealers and automakers. Forecasters believe it could last at least a year, which would have an additional impact on a person’s ability to get a new car – or at the price they want.
âWe’ve reached a point where supply is tight and we have to pay a price,â said Brian Long, who led the analysis and is the director of supply chain management at Grand Valley State. University. âThis has happened in many crises. I remember standing in line for gas not so long ago. We had to pay the price for it even though it was ridiculous, and obviously over time this crisis was resolved. This, I’m afraid, will be the case here as well.
New cars need the technology to drive, but as Long explains, their production is largely outsourced overseas and shared with other industries, which has caused problems during the COVID-19 pandemic.
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For example, automakers slashed orders for computer chips and other parts when auto sales plummeted in the first weeks of March 2020. When sales rebounded much faster, companies failed. could adapt because the supply of chips had already gone to other customers.
âYou’re supposed to know your entire supply chain and all the risks in that supply chain,â Long said.
Toyota of Grand Rapids says its inventory has grown from 100 new cars in stock to five or six since the spring.
Joe Adams, general manager, explains that the showroom orders directly from the factory to meet customer needs, but it takes two to four weeks for the cars to arrive. He says the price is never above a car’s MSRP.
Adams adds that the chip shortage has resulted in a need for used cars. He estimates that 180 used cars are in their lot, whereas before the pandemic there were around 120 used cars. However, vehicle prices were higher than usual.
âWe do our best to make sure our guests are looked after the same,â Adams said. âIt just becomes a constantly adapting position. “
According to the ISM-GRR, the September SAAR (seasonally adjusted sales rate) fell to 12.1 million units, down from the April SAAR of 18.5 million units. Sales of light vehicles fell 12.9% in the third quarter.
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Long says phased layoffs at auto parts makers in West Michigan may be possible, but the loss of growth is what worries him. Industry has been responsible for much of the region’s growth over the past decade.
Without the chips, these manufacturers sit idly by until the supply increases.
âWe have identified a few suppliers in western Michigan that can go hand in hand in the global auto parts market and they were to grow and they will now be prohibited from expanding,â Long said.
Long added, âI think we’re going to bring a lot of chipmaking back to this country, and I think you’re going to see some industries as well, like automotive, come out and identify a business – a small business maybe – they. are going to buy it and all the production will be dedicated to that particular company.
For now, Long says the only solution is to overcome supply chain issues.
âWe’ve reached a point where the supply is tight and we have to pay the price,â Long said. âThis has happened in many crises. I remember standing in line for gas not so long ago.
READ MORE: What are the short and long term solutions to the supply problem?
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