A worldwide shortage of microchips helped push car prices to record highs in 2021. In December, Americans paid more than $47,000 for the average new car — an increase of more than 15% in just one year.

Recap: The Reasons

Today’s cars are computers with wheels. Even an inexpensive new car can contain more than 100 microchips, powering everything from climate controls to shift timing. Luxury cars, with their more advanced entertainment and comfort technologies, can use more than 150.

In the early days of the COVID-19 pandemic, America stopped moving. As in-person gatherings paused and offices and schools went remote, automakers realized that Americans wouldn’t be buying many new cars. So they cut the number of microchips they ordered.

But people worldwide bought more personal electronics than ever. Needing extra connectivity to work and attend school remotely, we bought new computers, phones, and other chip-heavy devices.

When vaccines were approved, and government programs helped kick-start an economic recovery, Americans went car shopping again. Automakers tried to scale back up their orders for new processors. But the microchip industry couldn’t keep up with the new demand.

Chip Inventories Dwindling

When will the shortage ease? Experts disagree, but there’s a consensus emerging that it won’t happen in the first six months of 2022.

The United States Department of Commerce recently surveyed industries that use chips in manufacturing. The survey revealed that manufacturers who build everything from cars to medical equipment held a 5-day inventory of microchips this month. The same survey in 2019 found an average inventory of 40 days.

“It’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities,” said Secretary of Commerce Gina Raimondo. But building new chip factories can take years. That doesn’t bode well for the near future of car prices.

At Least Six Months More

Some automakers think the problem could ease later this year, however.

Hyundai Executive Vice president Seo Gang Hyun told investors on a conference call in early January that “The normalization of auto chip supply and demand is expected in the third quarter when the capacity of semiconductor companies is expected to rise.”

Nissan Chief Operating Officer Ashwani Gupta told Reuters the shortage would continue through at least the first half of 2022. “It will take some more time to get back to the normal operations. Day by day, it is improving, but I do believe it will continue for a while,” Gupta said.

Tesla, meanwhile, hasn’t commented on when it expects chips to be readily available again. But the company last week delayed some new cars so that it could use all the microchips it can get to meet the demand for its existing product.

Recovery Will Come Slowly

That recovery may come gradually, though. Pat Gelsinger, CEO of chipmaker Intel, told reporters last week that “constraints are expected to persist throughout 2022 and into 2023 with incremental improvements over this period.” Incremental improvements mean car buyers shouldn’t expect prices to ease quickly.

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