Small Part Big ProblemOct 01, 2021 ● By Glenda Vosburgh
The nation’s love affair with automobiles has hit a speedbump.
The ongoing global shortage of silicon semiconductor chips has forced automakers to reduce or even stop production, leaving auto dealerships across the country with meager inventories and consumers facing escalating prices for new and used vehicles. Frisco dealerships and their customers are no exception.
Only slightly larger in size than a quarter, the tiny transistor chips are made from silicon, which is the second-most abundant mineral on Earth. The chips are vital in order for electrical devices such as home appliances, computers and smart phones to function. In most modern vehicles, upward of 3,000 chips may be used to power infotainment, cruise control, fuel injection and other systems.
Those in the market for a new car will likely be forced to wait weeks or even months to get their wheels and may see costs associated with the purchase rise due to the shortage. Fewer new car sales also mean fewer vehicle trade-ins at dealerships, resulting in reduced used-car inventories as well. As demand remains high, so will prices for pre-owned vehicles.
With lower inventories translating into fewer sales, some local car dealers have been forced to look for streams of income from other services.
“We are still busy,” says Mike Mykeloff, general manager at Jaguar Frisco and Land Rover Frisco. “It is just a different kind of busy. We have meetings to discuss options for the current situation. One thing we are doing is working to improve our parts and service department. More people are having repairs done on their used vehicles instead of trying to buy a new one. That department will have to pay a lot of bills (for the dealership) in the coming months. We are also busy getting ourselves ready to hit the ground running when things improve.”
The auto manufacturers inform dealerships in advance how many new vehicles it will receive on a month-to-month basis. Prior to the chip shortage, the Frisco dealership typically got 80 to 85 new Land Rovers a month. That number had dropped to 62 recently. According to Mr. Mykeloff, in September only 30 were expected to arrive.
Typically, 15 to 20 new Jaguars are delivered to the Frisco dealership monthly, however that number has dropped to three. At some Jaguar dealerships nationally, the number is zero. Consequently, the wait time customers may experience to take possession of a new vehicle is increasing.
Prior to the chip shortage, Mr. Mykeloff says that on average at dealerships owned by Snell Motor Companies, including Land Rover Frisco and Jaguar Frisco, “The wait time for a new vehicle has been four months. … Now it can take six or seven months. We have lost a couple of customers because they didn’t want to wait for a car.”
In late August the dealership, located at 5935 Preston Road, had 11 new cars and three Land Rovers on the lot. Earlier that month, it received only nine new vehicles and all had been pre-sold.
The chip shortage has dragged on for more than a year and experts warn there is no end in sight.
When the world shut down in March 2020 in the wake of the COVID-19 pandemic, the rapid increase in the number of people working from home drove demand for the technology required to do so. At the same time, while people were urged to stay at home, the demand for big purchases – including vehicles – fell.
As automotive production lines shut down with the rest of the world, manufacturers canceled orders of the silicon computer chips used in vehicles. Chip manufacturers shifted from supplying the automotive industry to focusing on other market sectors that were doing well during the pandemic, such as healthcare and technology.
Fast-forward to 2021: As the world began to reopen and consumers were anxious to get back to normal, the pent-up demand for vehicles exploded. Chip manufacturers had difficulty keeping up, creating a perfect storm for the automotive industry.
“We sold (vehicles) well all through 2020,” Mr. Mykeloff says. “We did cut staff hours back to about 35 per week, but we had no layoffs.”
One bright spot amid all of the challenges is the fact that the dealership has a good inventory of used cars. “We are going out and finding them,” Mr. Mykeloff said. “We are online looking. Some are purchased at auctions and some are leased cars that have been turned in.”
The situation is slightly different at Kia of Frisco, at 10220 TX-121. Because the dealership opened on July 22, the manufacturer made sure it had an ample inventory of new cars. Nevertherless General Manager Brandon Morris says it has been a “crazy year.”
“Chips are not a problem with our manufacturer,” he says. “In March 2020, when car manufacturers got their forecasts, most cut production by at least half. Kia didn’t. That’s not to say we haven’t experienced shortages and delays, but our situation is caused by increased demand. Kia makes 50,000 cars a year and has been selling 80,000. We have a fairly consistent new car inventory, although we have fewer. We usually have 400 new cars and now we have 100. Fifty is better than most dealerships have.”
While new cars are being delivered, they are sold before they arrive on the lot. Buyers generally are waiting from one to eight weeks for their vehicles.
“Most customers have figured it out,” Mr. Morris said. “People have to have patience. I would tell them that the fact that there are no cars on the ground should not keep them from coming in. The cars are not there yet, but they are coming.”
While Kia of Frisco’s used-car inventory is good, similar to the new car stock, it is smaller than it has typically been. Vehicles are coming in through trade-ins, Mr. Morris said, and the dealership is not going out and purchasing vehicles. High demand for used vehicles has increased prices, just as it has industry wide.
“Someone who comes in to buy a two-year old car today will have to pay the same amount they would have if they had bought it new two years ago,” Mr. Morris explains.
As buyers clamor for cars, trucks and SUVs, and chip manufacturers continue to play catch-up with their production, the availability of computer chips is not likely to improve soon, industry experts say. The shortage continues to force automobile manufacturers to cut production worldwide, and officials say the problem is getting worse, according to a report by Reuters news service.
In September, General Motors Co., Ford Motor Co. and Toyota Motor Corp. cut production due to the chip shortage. GM said it would reduce production at most of its North American assembly plants due to the ongoing shortage. It also shutdown assembly lines in July. Ford announced it would once again cut production at its truck plants after significantly cutting production in March. In August, Toyota announced its plans to cut production by 40 percent in September.
None of that bodes well for quelling the demand for new cars in the near future. Published reports have quoted industry experts who say that record-high consumer prices for cars – including new and used vehicles as well as rentals – could continue through 2022. Analysts have said the global chip shortage could cost the auto industry $110 billion.
For now, Frisco automotive dealerships, like others across the country, will be forced to work with the hand they have been dealt. Likewise, consumers who cannot or do not want to postpone buying a vehicle likely should bring their patience and a bigger bank roll with them to the dealership.
Glenda Vosburgh is a freelance writer, animal lover and American history devotee who also is writing her first historical thriller.