For Want of a Chip

In June I began looking for a car. My trusty Honda was rejected by the garage and towed to my driveway where it sits motionless. Brake lines. Rust. Fuel lines. So they say. I’m not a mechanic but I don’t buck reality for too long. I switched from disbelief to search mode. Because even with delivery available for everything under the hot Florida sun, a car is still essential.

I knew what I wanted. I knew my price. Now I just had to look. As an online vendor in vintage, most of my inventory comes from estate sales and auctions. So the idea of car auctions had a comfortable appeal. There’s one that presumably dominates the landscape with auctions in nearly every state and individual lots in major cities. I registered and began the search. As part of the process, I discovered VIN numbers and CarFax, the Kelly Blue Book pricing guide. There’s even an application to estimate repairs per zip code. And I was off, favoriting likely buys, studying vehicle history, models and trim, engine size and gas mileage, noting whether air bags inflated with accidents, number of owners, maintenance, state where registered, whether personal or lease vehicle. I read about open recalls and lemons, life expectancy and size dimensions. While I inundated myself with massive amounts of car data, my favorites sold. Without exception. Poof! Gone. 

That’s when I changed focus. Off to the car lots. A few miles from my home lays a stretch of automobilia – one dealer after another, interspersed with independent lots crowding street corners. 

Now I get to the heart of the story. 

There are no cars. 

Or very few cars. It’s the same whether a Honda dealer or Toyota or Ford. The glittering swarm of new cars was instead a sweltering stretch of asphalt. Even the back lots were sparse. There were more used vehicles than new but these numbers were pitiful. 

After touring the Honda dealership and the Toyota guys across the street, I wound up in the Ford lot. A salesman walked the length from the showroom to our idling SUV. 

“Where are the cars?” By now, this was my only question. No haggling over price or discussion of options or dismal  financing queries. Just “Where are the cars?”

“Chips.” The salesman talks about a freeze in chips, then something about a fire in a factory. New car production is at a near standstill. 

“We don’t get many new cars,” he says, “and the minute they hit the lot, they’re sold. Fleets of them are purchased.”

We take his business card as an act of pure courtesy and drive off the barren lot.

I’m thinking about Trump and his tariff war, about Harley Davidson plants that close their doors and moved overseas. I’m recalling factories here in the US that had to shut down production, merge employees from one state to another. When was that? A year ago, two years ago?

And now, it seems the proverbial shit has hit the fan. 

Back at home, I do a little digging. The newspapers are spotted with alerts. The Detroit Free Press put out an explainer two months ago: “Everything you need to know about the chip shortage that’s plaguing automakers.”

It blames the shortage on Covid-19. However, the story strains creduality. Something about auto makers canceling orders for chips because of the virus and then putting their orders in simultaneously, which overwhelmed the chip makers. 

Really? Doesn’t sound plausible. Can’t they do a better job of regulating supplies?

What makes more sense is this statement by Joe McCabe, the CEO of AutoForecast Solutions LLC. 

“Global chip production is monopolized by a few global, Asia-Pacific suppliers,” said McCabe.

More details from the article explain that “raw materials for the semiconductor business often come from Japan and Mexico, with the chips made in Taiwan, China and some in the U.S.”

Well this jibes with Trump’s disastrous tariff war. And yes, there was a fire. A chipmaker in Japan suffered extensive damage but was to be back in full production last June. 

The shortage is hurting American car manufacturers across the map and coincidentally, driving up the price of used cars. 

“The chip shortage demonstrated our exposure to a limited domestic production capacity to the point where it has turned into an issue of national security,” McCabe said.

But it’s not just cars. Think about it. Chips are everywhere – and I’m not talking potatoes. 

Look at these headlines for perspective:

“Apple’s iPhone hot streak is going to run into the global chip shortage” – CNBC, 7/27/2021

“No end to global chip shortage before H1 2023, STMicro CEO says” – Reuters, 7/29/2021

“Intel chief warns of two-year chip shortage” – BBC, 7/29/2021

“Chip Shortage Update: GM To Temporarily Shut Down Most North American Truck Production” – IBT, 7/22/2021

“Apple and Tesla Are the Chip Shortage’s Latest Victims” – the Wall Street Journal, 7/29/2021

The semi conductor famine affects every device that relies on smart circuitry to perform. While North American automakers are losing billions in lost sales, the same scenario is facing laptop and smartphone makers, smart home systems, gaming devices, home appliances and the entire panoply of consumer electronics. Then there’s the lifesaving medical equipment and nuclear power plants. And, of course, the platforms that bring us the internet. We can only hope they’ve stockpiled chips.

It’s a big deal. It also affects the employment numbers as GM and Ford plants stop making trucks and dealerships idle in still waters, waiting for inventory. 

My venture into the used car market became an education into supply chains and global commerce. I dipped my toes in an empty car lot and emerged gobsmacked at the enormity of the problem. And it’s not ending anytime soon according to news reports. The chip famine will continue through 2022 at the earliest with some predicting it will extend through 2023. While most reports attribute the shortage to Covid and a fire at a Japanese plant, neither seems plausible. The Renesas factory blaze occurred in March 2021 when the shortage was well underway. It resumed production a month later

A likelier scenario relates to the former administration’s tariff war with China and retribution by the Asian nation. That fiasco preceded Trump banning the Chinese 5G smartphone maker Huawei in May 2019

This paragraph from the BBC draws a direct line between Trump’s actions and the chip shortage:

“US trade restrictions placed on the telecoms firm Huawei and chip-maker SMIC, among others, have caused other Chinese companies to stockpile supplies of their own.”

I will find a car before automakers and the electronics world recover. Those industries will benefit from the new administration and his commitment to domestic semiconductor chip manufacture. Meanwhile the guy behind this mess, the one who foolishly tangled with the dragon, oblivious to global supply chains, well he’s still huffing and puffing. If Americans want their PlayStation and Alexa and F-150 Lightning, they will never again allow his Sharpie near an Executive Order.

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