The global chip shortage is leaving car dealership lots empty. This is driving demand for used cars and the market is seeing an extreme shift in car valuations.
What is a chip?
A chip, or microchip, is a set of electronic circuits on a flat piece of silicon. Chips contain trillions of transistors or switches that can turn current on or off. There are two major types of microchips, logic chips, and memory chips, both of which are used in cars. In 2019, more than 634 billion chips were manufactured around the world, feeding a $472 billion industry.
What are chips made of?
Chips are made of silicon, which is found in sand, the second most abundant element on Earth just behind oxygen. Sand is melted to form a large cylinder called an ingot, which is then sliced into thin wafers. This is where the term “silicon wafer” comes from. Silicon is mixed with phosphorus or boron to provide conductive properties. A photolithographic “printing” process is used to form transistors on a wafer. Hundreds of chips are normally printed on the same wafer and then cut from the wafer.
What types of chips are used in cars?
The term “chip” has been the term that has taken hold to group many different types of electronic components that are used to control and manage vehicle electronic systems.
Why is there a global chip shortage?
The primary reason for the global chip shortage was supply chain impacts due to the COVID-19 pandemic manufacturing shutdowns. Other issues such as the ever-increasing demand for electronic components, thin profit margins of chip component manufacturing, and increasing manufacturing complexity. This has led to increased costs and time to spin up new manufacturing facilities. Panic ordering due to low availability has compounded the issue. The global chip shortage is expected last year before supply and demand stabilize.
How is the chip shortage affecting new car sales?
- In July 2021, Ford reported 60,000 – 70,000 new vehicles waiting for parts before they can be sold, many of them being stored in parking lots of the Kentucky Speedway
- In May 2021, GM has stockpiled thousands of brand-new trucks and vans that have been built at the General Motors plant in Wentzville, Missouri
How is the New Jersey new car market affected by the chip shortage?
According to NJ Car and Auto Outlook, new car retail registrations have nowhere to go except for up. Consumer affordability is strong due to low-interest rates and increasing household incomes. Pent-up demand from low inventory is also a contributing factor. There are expected to be at least 460,000 new cars sold in 2021 in New Jersey, a 10% improvement over 2020. New vehicle registrations in 2022 could reach pre-pandemic levels, with further improvement in 2023, but this will be dependent on how long the chip shortage and pandemic lasts.
How is the New Jersey used car market affected by the chip shortage?
Used car valuations are at record highs in 2021, mainly due to the global chip shortage and low new car inventory. The used car market is expected to have elevated used car values until the new car inventory stabilizes.
Now has never been a better time to sell your used car in New Jersey. Fill out our free car valuation form today to learn how much your car is worth!