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Microchip backup results in barren auto dealer lots around the country

According to the National Auto Dealers Association, as of June 28, 2021, 4.6 million vehicles hadn't been produced globally because of a microchip shortage. In the months ahead, 1.2 million losses are also projected, for a total of 5.8 million vehicles not being produced.

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A national shortage of microchips, universally used in vehicles, has caused a massive decline in inventory. The lack of new cars is impacting dealers at the national and local levels. (Forum News Service file photo)

BEMIDJI -- All car dealers are in the same boat right now.

That's the message coming from Todd Lowth at Bob Lowth Ford in Bemidji in reference to the national shortage of vehicles on lots. The main driver of the shortage is a lack of microchips caused by a slow down in production.

"We don't have any new cars at the moment," Lowth said. "We haven't had an F-150 pickup since Memorial Day. We've just been having a handful of vehicles or less for this whole time period."

"It cuts across all brands, makes and models," said Scott Lambert, president of the Minnesota Auto Dealers Association. "Nobody's immune from it. There are 12 chips on average in every motor vehicle produced today. The chips themselves aren't that expensive, they're about a nickel each. So it's $0.60 worth of hardware needed to finish the car."

Lambert said the shortage has been somewhat pandemic related.

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"There's only one company in the United States that makes them, everything else is made overseas," Lambert said. "The pandemic created more need for other electronic fields so we got behind."

According to the National Auto Dealers Association, as of June 28, 2021, 4.6 million vehicles hadn't been produced globally because of the shortage. In the months ahead, 1.2 million losses are also projected, for a total of 5.8 million vehicles not being produced.

In North America alone, 1.5 million vehicle losses have been announced with an additional 300,000 projected, for a total of 1.8 million units not being produced. Inventory-wise, levels are just at over 1.5 million, equal to a 25 day supply.

In May 2020, there were 2.6 million units, a 61 day supply. For July, the inventory is expected to decrease to 1.3 million units.

"The automobile industry is only 5% of the market for chips," Lambert said. "So, what a lot of manufacturers are doing is building the car, parking them and now waiting for the chips to become available. As new cars become harder to find, it's also creating a higher demand and higher prices for used cars, so it's a ripple through the economy."

Lambert also said it's not easy for new microchip manufacturers to start production either. To get a plant in production, Lambert said it can take nearly six years.

"What we tell consumers is if they have an idea of what car they want, they should be patient," Lambert said. "The dealer will eventually get the car."

Lowth said an allocation system is used to get inventory to individual dealers.

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"The system keeps evolving, but basically, it's a supply and demand situation," Lowth said. "You earn inventory by sales output. Ideally, we want 60 days -- about two months -- of supply with replacements and backfilling."

Once inventory starts coming back, Lambert said the demand will likely be there.

"During the pandemic, there was a loss of 20% in sales," Lambert said. "We're expected to get half of that back this year, but that hasn't happened because there's not the product to sell. Consumer demand is definitely coming back, but there's not the supply."

"I think things will be loosening up week-by-week as we go forward, but this may run all the way through the end of the year," Lowth said.

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