Why Buying a New Car After the Pandemic Is So Hard
The Covid-19 pandemic has impacted almost every aspect of the economy, one of which is a supply-chain issue. After the reopening of the economy, the demand for everything has increased causing a price surge for things like housing, cars, and airfare.
The automotive industry struggled tremendously during the pandemic. Covid restrictions and lockdown caused shutdowns of vehicle assembly plants and halted the production of new cars. However, as restrictions eased up and the economy started reopening again, consumer behavior across all sectors saw a rapid change. The post-pandemic economy saw people eager to spend money. With the distribution of stimulus checks and the implementation of a low-interest rate, more people were seeking to buy houses and new cars.
This demand for new cars has exceeded its supply. There is a global shortage of semiconductor chips, which are a key component in today’s vehicles. This has impacted the production of new vehicles. The pandemic had altered the production of new cars. With auto factories shutting down, new cars were not being built but demand for more computers and monitors increased as more people worked from home. There was a shift from making chips for vehicles to making chips for personal electronics.
Factories, however, could not keep up with the rising demand for new cars after the economy reopened. The issue is supply. Companies did not anticipate such a quick economic recovery after the pandemic where there was more demand for everything including new cars.
According to CNBC, Ford’s August sales of their new vehicles declined by 33.1% from a year before due to the shortage of semiconductor chips. Auto sales have historically been higher during the month of August, but due to the global shortage of chips, the inventory of new cars has been low causing a price spike for new automobiles.
A big reason why this is happening (shortage of chips to make new cars) is that during the pandemic, automakers cut orders for everything — including semiconductor chips. When the demand increased after the economy reopened, chip manufacturers were already committed to providing materials for their other customers in electronics and IT.
Why is all of this important? The global shortage of semiconductor chips indicates that large manufacturers in the automotive industry were not prepared for a crisis like the Covid-19 pandemic. If the manufacturers had effectively predicted changes that could possibly occur in the future, they may have been able to somewhat prepare for a situation like the global shortage of chips. The pandemic has proven that it is incredibly important for manufacturers to have a flexible and agile supply chain in order to stay resilient during times of crisis.
