The Semiconductor Shortage Domino Effect
April 14, 2022—Over the past couple of years, shortages have impacted nearly every aspect of people’s lives, and unfortunately the automotive industry has not been spared. This statement more than likely comes at no surprise to anyone within the industry at this point, but it has generally been difficult to pin down the “why” of it all. Why are these shortages happening, and how is that “why” directly driving the increase in cost that impacts the work done on the floor of a shop day in and day out? CCC Intelligent Solutions recently released their annual Crash Course report for 2022, and in it, they rolled up their sleeves to get into the details of this very idea.
One of the most, if not the most, impactful driving force in this situation is the technology involved. CCC acknowledges that consumers are interested in purchasing new cars with the latest software.
“The average new vehicle manufactured today contains more than one-thousand semiconductor computer chips,” CCC says in the Crash Course “...for things as diverse as interior lighting, engine cooling, battery management, tire pressure monitoring, seat control, oil/fuel/water pumps, ADAS features, and more.”
But there is a catch. Vehicles touting these shiny new features faced a decline in production beginning in 2020 and 2021 due to semiconductor chip shortages that, according to CCC, resulted in almost 10 million fewer new vehicles to be produced globally.
Naturally, due to a lack of access to brand new vehicles, consumer focus shifted to used car options. In turn, used car prices accelerated, furthering the chain of impact. Of course, it doesn’t simply stop at sticker shock. Demand for more high-tech vehicles, coupled with price surges and supply chain issues, also impacts repair costs. Put it into perspective this way: a crowded demand that results in a semiconductor shortage ultimately causes an additional demand for used vehicles which then results in a need for certain parts and, of course, the labor required to supplement the repairs.
To put it simply, repair costs have hit the gas pedal with full force. According to the CCC, the average cost of a repairable claim in 2021 was up to $3,718, around 8.3 percent higher than the previous year. This is due to the echoing effects of the supply chain as previously mentioned, as well as “an analysis of the changes within the population of repaired vehicles in terms of vehicle age, manufacturer and type.”
It comes down to materials and manpower, in a sense. Vehicles are getting more complex (hence the demand for the semiconductors), and with more and more options available there needs to be an educated workforce within the industry in order to properly address repair needs. It is a balance that is difficult to manage and it is made even worse by the constant battle against the supply chain. This, understandably, drives up costs even more.
The domino effect continues when looking at the fact that repair cost dollar distribution has not changed much over the course of 20 plus years, according to information tracked by CCC.
“The average price paid per replacement part has historically experienced only moderate increases at an aggregate level,” the report says. “However, supply chain issues in 2021 drove prices up sharply.”
At the end of the day, it all comes back to the supply chain. But perhaps, after reviewing all of this information, it isn’t that simple. The next time supply chain issues inevitably come up in conversation, it may be worth your time to provide context to the wide scope of elements at play here. Demand for ADAS features is not going away anytime soon, but neither is the demand for vehicles in general.
Customers and industry professionals alike will have to continue to ride this wave for the foreseeable future, with an understanding that the rise in costs is not coming out of nowhere. In fact, it is all far more connected than it seems.