Chip Shortage Continues to Weigh Heavily on Auto Industry

September 7, 2021

As the shortage of crucial semiconductor chips drags on, the automotive industry continues to face massive headwinds, and unfortunately, the problem shows no sign of relenting any time soon.

U.S. auto sales in August declined sharply to an adjusted selling rate of 13.09 million vehicles, the worst monthly pace since June 2020, and down substantially from this year’s peak of 18.5 million in April, according to data from Motor Intelligence, Ford announced that their new vehicle sales plummeted in August, declining 33% from the same month a year prior. The situation is even direr for European manufacturers. The U.K. produced fewer cars in July than in any other July since 1956.

As the shortage of chips creates a bottleneck for manufacturers, dealer inventory is dwindling. Deals only have about 942,000 vehicles available for retail sale, according to data from J.D. Power. Prior to the pandemic, inventory hovered around 3 million.

The shortage is also being exacerbated by the push to increase the production of electric cars, which require several times as many chips as gasoline cars. Ford’s Focus, for example, requires about 300 semiconductor chips, while their comparable eclectic model requires 3000.

The chip shortage was initially expected to be a short-term concern to be worked through as the economy sprung back to life after last year’s lockdowns. Now, however, many are acknowledging that the shortage will persist for some time. An executive from Ford’s European operations estimates that the shortage could last until 2024. A forecast from consultancy firm Alix Partners estimates that the chip shortage will cost the auto industry $110 billion in revenue in 2021.

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