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The Microchip: How It Has Caused Chaos for Consumers and the Auto Industry

Used car shoppers are suffering from sticker shock and dealers themselves are using words like “bizarre,” “crazy” and “wacky” to describe today’s used car market. They are astounded that used cars are selling more than they are normally worth.

The Associated Press says used car prices have increased 30 percent from last year. They hit a record 10 percent increase in April, and then jumped 7.3 percent in May, the biggest 12-month increase in 13 years. It’s hard to imagine the average used car now costs $26,457.

This never-before-occurrence in the auto industry is all due to a microchip, which has now become essential to the technological production of new cars. Microchips are semiconductors used to store memory. They are responsible for operating modern car onboard computers that control safety systems, infotainment, climate controls, speedometers and antilock brake systems. Their cost can range from a nickel a piece to over $100, but one missing microchip stops the completion of an entire line of vehicles that use the part.

When the pandemic hit and forced a six-week lockdown in many parts of the country, with lower demand for cars and plant shutdowns, automakers reduced their orders for microchips. In the meantime, electronic makers stepped in and upped their orders for chips for televisions, computer laptops and desktops, smartphones, gaming consoles and other electronics, since demand for these products rose as people were staying home more with work from home and school at-home learning. Automakers did not expect the market recovery to happen so soon and now that demand for cars has surged, microchip suppliers are unable to fulfill automakers’ orders.

To compound the problem, the mega-container vessel, Eva Given, got stuck in the Suez Canal in March, preventing other ships carrying cargo from both sides of the canal to pass. The incident further stalled an already strained supply chain of microchips and other auto parts, as well as crude oil, consumer products, and other equipment. The impact of the canal closure on schedules and port calls is still being felt today with shortages of European vehicle imports and European-made parts at U.S. dealerships and assembly lines.

The delay in the supply chain has forced auto manufacturers to shut down some plants or slow production of new cars. According to autonews.com, some automakers are continuing production of vehicles but with less technology. Some are limiting installation of fuel-saving modules or navigation systems in some vehicles.

The optimistic forecast is the microchip shortage could ease by the end of the year; worst case is it could continue through 2022. And chips are not the only products in short supply. There are reported shortages in petroleum-based goods, such as seating foams.

What’s clear is until new car production returns to normal levels, used car shoppers will need to brace themselves for sticker shock for a longer period of time.

When in the market for a used car, stop by Carousel Preowned. CarouselPreowned serving Iowa City, Cedar Rapids, Davenport, North Liberty, Marion, and Coralville, IA, is proud to be an automotive leader in our community. We do our best to ensure your complete satisfaction every time you step into our car dealership. This is why we offer the widest selection of used and pre-owned cars, trucks, and SUVs and provide true ease of purchase in Iowa.

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