What is going on with the Microchip Shortage?
Somewhere, there is a giant parking lot filled to the brim with cars and trucks that don’t run. They aren’t wrecked; no, they are brand new; they are just missing a key component to making them run. These vehicles are missing microchips, and they are not the only thing affected by the current shortage. Many tablets, computers, appliances, and other electronics need microchips to function. So why is there a shortage, and how is it affecting us?
The COVID 19 pandemic caused slowdowns in a lot of manufacturing, and this included the microchip industry. Many factories have had to shut down to keep employees safe. There was also an increase in demand for small electronics, with so many people working from home. Factories are now behind in production, affecting many different electronic industries. Two of the big industries are the vehicle and the furnace/AC industry.
The vehicle industry’s inability to keep up with demand isn't just affecting the new car industry. It’s also affecting rental cars and used cars. Prices of new vehicles continue to grow, which, coupled with low inventory, has led consumers to seek out used cars. This has driven up the cost of used vehicles. The average used car price as of July 2021 was $25,000. Vehicle prices will make it difficult for people, already hurting from the pandemic, from acquiring used or new cars at an affordable price.
The car rental industry is seeing similar problems. An increase in travel means an increase in rental cars. However, more and more travelers are arriving at rental facilities to be met with an empty lot. If there are cars available, the choices are slim. A man traveling to Disneyland with his family commented to the LA Times that his original rental choice was substituted by a much older vehicle of a different kind than was initially reserved.
But rental car companies can do little to restock their lots. With the new car industry severely impacted, there is little available for them to purchase. They are now faced with keeping vehicles significantly longer and attempting to buy back used cars from auction. Travel is beginning to increase, but rental cars may be unavailable once travelers arrive to pick them up. Travelers will arrive at their destination to see long lines, little or no availability, and much higher prices.
The auto industry is definitely taking the spotlight on the microchip shortage, but another industry worth noting is the Furnace and AC industry. HVAC contractors are genuinely concerned that as temperatures drop in northern states, there may not be enough parts or new units to go around. Bruce Perkins, a logistics officer at Harker Heating & Cooling, told WMTV in Madison, Wis. that microchips “dictate when the furnace comes on, when it shuts off, how the fans are operating.”
No heating in freezing winter temperatures is bad news for many residents. Contractors are looking at ordering more inventory and having an ample supply of portable heaters as short-term solutions. They are hopeful for the shortages to clear up by next spring, but it's looking more and more like it could be significantly longer.
If the shortages continue, this will mean significant changes to many electronics industries and continued rising prices on products for communities already heavily affected by the pandemic. Factories are full of backorders due to an increase in demand. President Biden said he was “seeking $37 billion in funding to help boost domestic chip production,” and GM motors is searching for new supply contracts.
This shortage is a global issue that needs to be taken care of swiftly. America would like to fill the hole and, in doing so, could stimulate the economy and create jobs. Only time will tell.