The Expert Podcast

So if you're a consumer looking to purchase a vehicle or even if you're a car dealer wondering about the future of automotive retailing . With regard to available inventory . Here's an article that has some bad news for everybody . the biggest supplier of chips Bosch which is a large German company . has news Nobody wants to hear it . for the last year or two people have been saying well the chip shortage . Is temporary . And it's going to get better in the next year So getting back to pre 2020 levels right 2020 is the year when the chip availability really started being a problem . And everybody thought it was temporary Most manufacturers and even dealers expected things were going to get better Well let's take a look behind . The front page articles and see really what's going on . The short answer is chip shortage . Ending is unlikely consensus right now is that the inventory could be some improvement . But a new wave of crisis could hit in 23 So even though it might get a little better this year in 23 it's going to get worse again . I'm sorry in 22 , it's going to get worse again in 23 Why is that ? Why can't we just go back to making chips . Well part of the reason is . The crisis is unlikely to come to an end . Because chip makers don't have the machines to even build chips The new versions of . The . Devices that go into automobiles . Never really had the capacity . To build as many as they're needed . It's not like somehow . Things got bad because of pandemic . It was an intrinsic supply chain problem . The companies are . In the process now of . Evolving to making new types of chips The result is supply bottlenecks could continue until 24 . the biggest problem is the lack of equipment that's required in the production of chips . The machines . In manufacturing . Facilities that make these chips . Aren't something you just build once And then they run for 50 years . Chip manufacturing equipment changes every few years . The new types of computer chips that do more complex . Management of vehicles , navigation systems . even lights in a vehicle . Are more complicated now than they were even three years ago . It used to be that you flipped a switch on your car dashboard and it connected electricity right To your light . Bulb . Now there's computers that control all of these devices things like power seats , heating and air conditioning systems in your car . There are more chips now in a car than there ever were . The newer control In automobiles are new . Evolution . Of devices that didn't exist three four years ago . There was some . Manufacturing supply of these . Types of chips in 2018 19 beginning of 20 . The problem Wasn't so much that the pandemic cut back on the production , it cut back on the development of new manufacturing facilities . Not something you can magically turn on overnight . These facilities were expected . To be built during 2019, 20, and 21. . The fact that the pandemic . First of all cut the workforce . And second of all cut the supply chain for those manufacturing plants in the machines that build the chips . Kind of put everything . Behind . And it's like a domino effect It takes many years to bring that back up This is the real underlying problem . And , you know the prediction . Last year was well by 2021 or 22 it'll be back to normal Now they're saying 2024 , I suspect . Based on . If you really peel back the layers of the onion of what's happening with this . A supply chain of chips . Is it it might even be four or five years . In fact , many manufacturers aren't going to put a lot of money . Into these because most automotive companies are transitioning to electric vehicles . So why build a billion dollar plant ? To build chips for gasoline vehicles . If you're going to be building EVs anyways . It's very likely the gasoline vehicle . Chip supply is going to be never better than it is now . And it may never be back up to the normal routine . So the current level . Of new car inventory . Whatever that is May never get better than it is today Think about that . If you look at a new car dealership and see 10 cars on the lot where they used to be 200 If you go to some small town dealers that have zero or one new cars that used to have 50 or 60 . That may be . The permanent . Inventory expectation for the dealers for buyers at the dealerships And for the automotive industry for gasoline vehicles . Who knows what's going to happen with EVs How does that affect the used car market Well used car market has spiked . In value . Have a video that we'll post the next couple of days . Where it's 40% higher or $10,000 higher than it was a year ago . Because of the lack of new cars most people think that that's temporary . Once there are more new cars . Then the used car values will go back down . What if there are no more new cars ? What if the new car inventory volume never gets back to where it was Chips are required in new cars . Matter of fact . some manufacturers we saw , an article . actually was a YouTube video from a deal Salesman at a dealership . That was showing that some new cars were having a credit . On there Sticker price for a couple of hundred dollars because it wouldn't didn't have something like a backup camera . Or it didn't have a heated steering wheel or some small items or maybe heated mirrors because the chip wasn't available for that option So they just deleted that option from the car . Certain small Systems you can disable or not install on the vehicle . There are probably . 50 or 60 crucial chips that are required for the car even to operate that you can't even deliver a car without there's tens of thousands of vehicles for some manufacturers sitting waiting for chips And that may never get better because the plants that produce them just don't exist at the volume that is currently needed . It's not a matter of just hiring people back . It's the plant and the machines that build them . Are even in existence So plan for that If you're a dealer plan for that if you're a consumer plan for that if you're in the used car business Because the inventory of vehicles . May never get better until EVs become more adopted And that requires is a domino effect that requires charging stations and infrastructure . It's not quite going to be quite this bad . But think about . The . Vehicle Industry in Cuba . Where all of a sudden no new vehicles . were allowed to be imported to Cuba during the embargo . In the seventies and eighties . So now you have 1950s and sixties vehicles It's like it's frozen in time that are on the road If you go to Cuba and you look at . Now there's some newer vehicles but if you went to Cuba and the new . or two thousands , All the vehicles were 1950s and sixties cars that keep getting fixed and repaired . And that's the only thing you're allowed to have there It may not be that bad here obviously but think of that metaphor Think of that analogy where use cars . The life has to extend longer and the values are higher because there are no new cars People still need cars and there's more people every day that need cars people turn 15 or 16 and need a car . you know more households are formed . people are immigrating to the country . So you need more vehicles every single day . And if there's not enough being produced as new vehicles , Used cars have to do And that's something that . You may want to plan for if . Vehicle acquisition or buying and selling Is it all part of your business model or your lifespan Let us know what you think . In the comments .