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The strangest economic anomaly that I’ve noticed this year– among many! – hit me when I was driving in Texas, my home state. The Dallas Fort-Worth metroplex has countless car lots visible from the main highways, with Texas-sized flags out front and massive placards with brand logos.
In the past, I was used to seeing acres and acres of cars, nearly a year’s supply sitting there, with a good amount of pre-owned cars in a separate lot. What an industry!
This time, I had to do a double take. Barely creeping along the clogged highways – seems like the Big Apple has fallen in love with the Lone Star State – looking to the left and right at car lots, they were empty. All of them. A few spotty cars here and there but mostly wasted real estate.
It turns out that this is not only in the large cities. Small-town dealers have the same problem. They can’t get cars. And it’s not just in Texas but all over the country and in the world at large. Globally, the auto industry will produce between somewhere 1.5 and 5 million fewer vehicles this year than expected.
As with so many other anomalies of our times, the car shortage cries out for explanation. Google it and you find a perfectly rational explanation: there is a semiconductor shortage. Cars require at least 100 or so chips, some on the market for as low as 50 cents. Manufacturers cannot get them, due to various oddities. Manufacturers are waiting. If they cannot get them, the cars cannot work. You cannot ship much less sell cars that do not go. Thus does an entire industry temporarily die.
It’s a plausible explanation. No reason for panic, right? From time to time, cars just vanished and that’s okay. Taiwan has a water shortage. It happens. Hey, it’s the same with toilet paper, gasoline, chicken, ketchup, or any other good. That’s just the way life is. Sometimes things are available, and sometimes they are not.
In fact, there is nothing normal about this. It’s anomalous. People have come to expect that the things they want to buy are going to be there for them when they are ready to throw down the credit card. It’s been that way for most of our lives. Suddenly something has gone wrong. One never knows what is and what isn’t available. Many supply chains are broken. Many markets once taken for granted are malfunctioning.
Why? In the case of cars, I’ve been asking people this question for a long time and never received a satisfactory answer. Finally I bumped into the coverage at Car & Driver, and gained some clarity.
The shortage of semiconductors stems from new vehicle sales plunging last spring. Automakers and suppliers, not anticipating sales to recover quickly, cut orders for microchips in order to avoid a surplus of supply. When demand for new vehicles did pick back up, the automotive industry increased orders for the chips, but the chips were already headed elsewhere: for consumer electronics.
Computers and gaming consoles, which only saw demand increase through the pandemic, needed those same semiconductors. Now, semiconductor manufacturers are fulfilling the orders of the consumer electronics industry and the automotive industry is waiting for its orders to be filled. This, along with several other kinks in the supply chain, led to the current shortage.
Now we are getting somewhere. Let’s unpack this. Why precisely did new car sales plunge last spring? One word: lockdowns. People were forced to stay home. Businesses were shut. Fear ruled the land. No one could go anywhere nonessential. All over the country, people hunkered down by force of law and also because the plague was out there everywhere. You could barely rent a car; buying one was inconceivable.
Many years of experience in industry has made the idea of “just in time” inventory the prevailing practice. With things obtainable just for the ordering and shipping, why keep a year or more of stuff around when you do not really need it? Car manufacturers kept to the protocol. Anticipating less demand for the foreseeable future, they stopped ordering semiconductors to run their cars. After all, these things cost very little. They will click for them when the time comes.
After a dreary and dreadful summer, there was a sudden and largely unexpected demand for cars. People were leaving the city for the country, and they needed a car. They wanted to get out of the house and go for a drive, since flying was made so utterly miserable and scary. Plus people were suddenly flush with cash both from profligate stimulus checks and savings from all the money not spent on restaurants and movies over the last six months.
The manufacturers responded to the exploding demand as they always had. They ordered new chips, prepared to stick them in already-assembled cars, and prepared for boom times. The problem: there were no chips. The plants that make them had already retooled for another explosion in demand, this time for hardware for the stay-home Zoom class that had developed an insatiable appetite for TVs, laptops, and gaming consoles. The semiconductor business was booming, just not in the automotive industry.
Markets are great at adapting but not always instantly and with perfect foreknowledge.
But surely there are used cars for the taking right? Sure, if you don’t mind paying 20% over Blue Book prices. That is, if you can find them. There is a shortage there too, but, hey, at least you can get far more than you ever expected for your old car. Sure, but there’s a problem: then you do not have transportation, which, unless you live in New York City, you rather need.
Some predictions are that the chip shortage will last until 2022. And it not only affects cars. Chips run vast numbers of things today, from refrigerators to home assistants to security systems. They are the lifeblood of the digital age. This is a very serious matter.
Will it be resolved within the year? The incredibly goofy Biden administration is somehow under the impression that it can pass an executive order, spending $50-plus billion and the chips will appear like magic. Incredible naivete.
Here’s the problem. It’s cars and refrigerators today but what’s tomorrow and the next day? These kinds of dislocations will likely pop up elsewhere too, in strange places and with unexpected manifestations. There is no getting around the truth: this is all part of the collateral damage of the lockdowns of 2020, undertaken with astonishing intellectual pretension and pushed with unbounded arrogance against all human experience.
What the heck did we think would happen by willy nilly shutting down the market, disabling society, closing off supply chains, slicing and dicing the intricate network of market exchanges between those which states believe are necessary and those which they do not? That’s playing with fire. That fire is now reappearing in strange places and in strange ways.
Trouble is that most people will not make the connection between the radical diminution in the quality of their lives and the public policies that forced that condition upon them during a nightmarish year of an unprecedented experiment in control.
"right" - Google News
May 27, 2021 at 06:43PM
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Why It's Harder to Buy a Car Right Now - RealClearMarkets
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