April 15, 2024


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‘No end in sight’ for computer chip shortage impacting automotive industry

ALLENDALE, Mich. — A recent report from a West Michigan nonprofit organization found frustrations increasing among those in the automotive industry as they continue to deal with an on-going computer chip shortage.

In its September 2021 edition, the Institute for Supply Management–Greater Grand Rapids wrote there is “no end in sight” in the nationwide crisis impacting automotive customers, dealers and manufacturers. Forecasters believe it could last for at least another year, further impacting a person’s ability to get a new car — or at the price they want.

“We’ve hit a spot that supply is tight and we have to pay the price,” said Brian Long, who conducted the analysis and is the director of supply chain management at Grand Valley State University. “This has happened during many crises. I remember standing in line for gas not that many years ago. We had to pay the price even though it was ridiculous, and obviously over time that crisis did resolve itself. That, I’m afraid, is going to be the case here too.”

New cars need the technology to drive, but as Long explains, the production of them is largely outsourced overseas and shared with other industries, which caused issues to arise during the COVID-19 pandemic.

RELATED: GM, Ford halt some production as chip shortage worsens

For example, automakers trimmed orders for computer chips and other parts when auto sales fell in the early weeks of March 2020. When sales rebounded much faster, companies could not adjust since the supply of chips had already gone to other customers.

“You’re supposed to know your entire supply chain and all of the risks in that supply chain,” said Long.

Toyota of Grand Rapids says since the spring, their inventory has gone from 100 new cars in stock to five or six.

Joe Adams, general manager, says the showroom is ordering directly from the factory to help meet customer needs, but it takes anywhere from two to four weeks for cars to arrive. He says the price is never above a car’s MSRP.

Adams adds the chip shortage drove a need for used cars. He estimates 180 used cars are in their lot when prior to the pandemic it was around 120 used cars. However, prices for the vehicles have been higher than usual.

“We do our best to make sure our guests are being taken care of in the same fashion,” said Adams. “It just becomes an ever-adapting position.”

According to ISM-GRR, the September SAAR (seasonally adjusted sales rate) fell to 12.1 million units, which is down from the April SAAR of 18.5 million units. Light vehicle sales fell by 12.9 percent in the third quarter.

RELATED: The global chip shortage is causing problems for first responders

Long says rolling layoffs at auto part manufacturers in West Michigan may be possible, but the loss in growth is what worries him. The industry has been behind much of the region’s growth for the last decade.

Without the chips, those manufacturers are sitting idly until the supply increases.

“We have identified a few suppliers in West Michigan that can go toe-to-toe in the world market for automotive parts and they were projected to grow and now they’re going to be prohibited from growing,” said Long.

Long added, “I believe we’re going to bring a lot of chip manufacturing back to this country, and I think you’re also going to see some industries, like automotive, go out and identify a company — a small company possibly — they’re going to buy it and the entire production will be dedicated to that particular firm.”

For now, Long says the only solution is to ride out the supply chain issues.

“We’ve hit a spot that supply is tight and we have to pay the price,” said Long. “This has happened during many crises. I remember standing in line for gas not that many years ago.”

READ MORE: What are the short-term and long-term solutions to supply issue?

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