Used car prices in some countries were already up as much as 10 percent by the end of the first quarter of 2021. At AutoNation, the largest car dealer in the United States, the cost of used cars had jumped 17 percent from a year earlier. The cause was a worldwide shortage of computer chips.
The shortage ran from 2020 to 2023 and hit more than 169 industries, according to a Goldman Sachs analysis. Cars were among the worst affected. A modern car can carry 1,400 to 1,500 chips, and some carry up to 3,000.
Why new cars dried up
Early in the pandemic, carmakers guessed wrong. They expected sales to fall, cancelled chip orders, and then could not meet demand when it came back. Chipmakers, meanwhile, had committed more of their capacity to the IT sector.
Then came the accidents. A February 2021 winter storm shut three plants in Austin, Texas, run by Samsung, Infineon and NXP. A fire at a Renesas factory in Japan, which supplies 30 percent of the world’s car microcontrollers, took at least 100 days to recover from. Taiwan suffered its worst drought in more than half a century, a problem for plants that use huge amounts of ultra-pure water.
Production lines stopped. Ford parked thousands of unfinished vehicles at Kentucky Speedway to wait for chips. Toyota planned to cut global output by 40 percent in September 2021, and General Motors halted almost all of its North American car plants for a week or two that month. Opel closed its Eisenach plant until 2022 and temporarily laid off 1,300 workers. In the third quarter of 2021, US new car sales were only two-thirds of the year-earlier level.
A dealer’s view
AutoNation chief executive Mike Jackson told investors in April 2021 that the supply problems probably would not clear until 2022. “It’s a force majeure at the moment because the chips simply aren’t there,” he said. He expected more demand than supply for the rest of that year.
The squeeze did not hurt his company’s sales. AutoNation reported same-store new vehicle unit sales up 22 percent and used vehicle sales up 28 percent from a year earlier. Revenue rose 27 percent to $5.90 billion, and adjusted net income from continuing operations surged 184 percent to $233.8 million. The company said it was shifting strategy toward strong front-end margins on new cars and volume on used ones.
Automakers did not all lose. Toyota and General Motors posted record profits for 2021 on resilient demand and smaller buyer incentives. The industry largely recovered by 2023, when global car production rose 3 percent, though US unit sales had still not returned to pre-pandemic levels by 2024.
Sources
- 2020–2023 global chip shortage – Wikipedia
- Chip shortage to plague auto industry for next year: AutoNation CEO
