The automobile inventory shortage issue explained

If you’ve been looking to purchase a new vehicle in recent months, you may have noticed a shortage of inventory on dealership lots.

At my Volkswagen dealership in Peterborough, current inventory levels for new vehicles are running at about 50 per cent of normal capacity, and lower inventories are a reality at car dealerships across Ontario. Inventory levels for used cars are low as well.

There are several reasons for this inventory shortfall, starting with a global shortage of semiconductor chips. These computer chips, which are slightly larger than the size of a quarter, are used to power backup cameras, emergency braking systems and power steering systems on cars.

During the early months of COVID-19, major automakers shut down car production and stopped ordering semiconductor chips, anticipating a lower demand for automobiles as sales stalled amid the pandemic spread.

During the production shutdowns, global demand for semiconductor chips shifted to consumer products, such as gaming consoles, smartphones, laptops and other electronic products. As more people began working from home, it created a greater demand for these products.

By the third quarter of 2020, demand for new vehicles began to heat up, but the semiconductor companies were already committed to delivering chips to the consumer electronics and IT industries. As a result, the auto industry lost its place in line for chips, and the extended wait times inevitably led to supply issues.

Another cause of the semiconductor shortage was a fire at one of the auto industry’s largest computer chip suppliers in Japan in March 2021. The company, Renesas Electronics Corp., supplies about 30 per cent of the microcontroller unit chips used in the production of new cars.

Extremely cold weather in Texas in the spring of 2021 (where some plastic and foam vehicle components are produced) and global shipping problems further compounded the loss of production and supply of new automobiles.

Not only has the automotive industry been affected by the shortage of semiconductor chips. TVs, medical devices, LED lights, household appliances and consumer tech items are among the hundreds of products affected.

So, where does all this leave consumers who are looking to buy a new vehicle? Should they choose from the limited inventory on dealership lots, and the few vehicles that are trickling in? Or should they wait a few months, possibly into the fall or winter, when inventory levels are back to normal before deciding on their next new car?

Although many signs point to auto production and deliveries resuming to normal levels this summer or fall, some industry insiders are predicting that inventory shortages could be with us for a while longer, possibly into the winter months and beyond.

Truth is, nobody knows for certain when auto production and deliveries will resume to pre-pandemic levels. For that reason, I would recommend that car shoppers take advantage of what’s on dealership lots today.

Yes, there are fewer choices, but vehicles in all categories are available, and low interest rates, cash rebates and other financial incentives are available on select makes and models.

Visit your local dealer and manufacturer websites to see what incentives are currently offered on specific makes and models — incentives tend to change at the beginning of each month.

Of course, when buying a new (or used) car, consumers still need to establish a budget and do their homework in researching a vehicle that’s right for them, factoring in borrowing/leasing costs, insurance, gas mileage, vehicle ratings and reviews, etc.

You might just discover that your dream car is waiting for you on a dealership lot right now, at a price that fits your style and budget.

Michael Eatson is president of the Trillium Automobile Dealers Association and is president of Peterborough Volkswagen. This column represents the views and values of the TADA. Write to president@tada.ca or go to tada.ca. For information about automotive trends and careers, visit carsandjobs.com.