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Essay: Auto Industry Chip Shortage (Covid-19)

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  • Subject area(s): Business essays
  • Reading time: 2 minutes
  • Price: Free download
  • Published: 17 February 2022*
  • Last Modified: 22 July 2024
  • File format: Text
  • Words: 600 (approx)
  • Number of pages: 3 (approx)
  • Tags: Essays on Coronavirus

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This page of the essay has 600 words.

The car-buying market is overwhelmed with buyers, the only problem is the new and used car inventory is so low. At the beginning of the pandemic, it put a great deal of production to a halt. This caused a spiral effect to happen, leaving most car retailers without a key fob for the new vehicles being produced.

Background

In my recent search for a new vehicle, I learned very quickly that if I saw a car that I loved, I better jump on it before it is sold. Normally I would not be too concerned considering they make new vehicles every day. The production is not the issue though, the inventory is there but you cannot sell a car without keys.

Discovery

Around March 2020, is when the COVID Pandemic started to affect the world. A lot of businesses had to shut down completely. This caused a shortage of various things such as toilet paper, coin, and key fobs. There is a specific product used in key fobs called a semiconductor chip. “A 26-week lead time is needed to build the chips before they are installed in a vehicle”(Wayland, 2021), explains Ford’s chief product platform and operations officer, Hau Thai-Tang. This means it will take even longer to get those vehicles out to consumers. The chips are not just used in various things for vehicles, they are used in many electronic devices. This means the car industry is finding out they have a new competitor in electronics.

Falling short

“General Motors expects the chip shortage will cut its earnings by $1.5 billion to $2 billion this year. Ford Motor said the situation could lower its earnings by $1 billion to $2.5 billion in 2021. Honda Motor and Nissan Motor combined expect to sell 250,000 fewer cars through March due to the shortage.”(Wayland, 2021) Looking across the board, most Motor Companies have already been affected by this shortage.

The fact that the chips take so long to make it puts the companies so much further behind. If these companies are not open and operating, they will continue to lose money.

Resolution

Many Motor Companies that shut down due to the shortage, have decided to reopen production. The idea is to keep producing vehicles without key fobs, store those vehicles until they can produce a key for them, and then release the vehicles to the appropriate places. “Initial reports had suggested the shortage for the automotive industry might disrupt production until 2023.”(Winton, 2021) The market will eventually recover in time. GM Chief Executive Mary Barra says “the company expects the second quarter to be the auto maker’s weakest of 2021 in terms of reduced production before some recovery occurs in the back half of the year.”(Naughton, 2021)

Conclusion

The vehicle industry was certainly not excluded from being a victim of COVID-19. This just goes to show disruptions in production can take months to affect you on the consumer side but could take years for companies to recover. In the meantime, if you are in the market for a new car your trade-in will probably have a higher value. I look for dealerships to get an increase of newer vehicles.

References

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