The COVID-19 Delta Variant Is Triggering Another Semiconductor Shortage

Until 2023?
Brad Bergan
Silicon in a machine assemblage.MACRO PHOTO / iStock

In economics, low supply and high demand mean rising prices.

Earlier this year in the springtime, the auto industry was optimistic as a shortage of computer chips that had sent automotive prices soaring seemed to be passing. Many consumers had double-crossed their fingers that relief in prices forced upward by the coronavirus lockdowns of 2020 was headed their way.

Alas, this was not so.

Because the core Asian countries that manufacture auto-grade chips have seen a surge in COVID-19 cases from the radical Delta variant, this is exacerbating the supply shortage, leading to further delays in the global quest for a "return to normal" in automotive production, forcing the supply of vehicles to artificially low numbers, according to a press release from the Associated Press.

In other words, automotive consumers will continue to suffer rising vehicle prices into 2023.

Several major auto companies are pausing production

Analysts are sorry to say that record-high consumer prices for vehicles, whether new or used or rental, will continue into next year. Worse still, they may not subside until 2023. And this global parts shortage extends beyond computer chips, alone: Automakers are beginning to notice shortages of other crucial parts, like glass, plastics, and wiring harnesses. Additionally, critical components for goods like industrial machinery, sportswear, farm equipment, and even kitchen accessories have become bottled up at global ports from unconscionably high demand, which has outpaced supply in the wake of the resurgent virus.

"It appears it's going to get a little tougher before it gets easier," said Glenn Mears, who operates four auto dealerships in Canton, Ohio. General Motors and Ford have declared one- to two-week closures at several North American factories, some of which manufacture the high-demand full-size pickup trucks that've become synonymous with their brands. And, late in August, the semiconductor shortage compounded by other shortages grew so overwhelming that Toyota was forced to slash production by at least 40% for two months in both North American and Japanese factories. These substantial cuts translate into a 360,000-vehicle reduction globally this month. Toyota had so far bypassed the need for spontaneous factory closures its rivals had seen in 2021, but now expects to suffer production losses in October.

Average auto sales are $8,200 higher than two years ago

Nissan had decided to close its colossal factory in Smrna, Tenessee, until August 30, but, because of the ongoing chip shortages, it now expects the closure to continue until Sept. 13. Even Honda dealers are preparing for less frequent shipments. "This is a fluid situation that is impacting the entire industry's global supply chain, and we are adjusting production as necessary," said Honda Spokesperson Chris Abbruzzese, in the release. And these industry-wide production interruptions translate into ongoing price spikes for which few had planned, with the average new vehicle sales reaching more than $41,000 in August — a record and nearly $8,200 more than the average price just two years ago, estimated J.D. Power, according to the release. With little choice but to conserve their increasingly scarce supply of computer chips, automakers have started directing their installation in higher-priced models, like large SUVs and pickup trucks, which, in turn, increases the average sale amount.

The COVID-19 coronavirus has shuttered small- and medium-sized businesses throughout the world, with multiple industries irrevocably changed. Some — like Apple's big tech, SpaceX's commercial space endeavors, and Amazon's deliveries, along with their billionaire c-level officers and founders — have experienced unprecedented growth. But for traditional industry pipelines like the automotive industry, it's hard to say for certain when business, and its consumer-facing dealerships, will return to normal.

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