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'No end in sight' for computer chip shortage impacting automotive industry, report says

Posted at 10:06 AM, Oct 13, 2021

ALLENDALE, Mich. — A recent report from a West Michigan nonprofit organization has found that frustrations are increasing in the automotive industry as it deals with an ongoing computer chip shortage.

In its September 2021 edition, the Institute for Supply Management–Greater Grand Rapids (ISM-GRR) wrote that there is "no end in sight" in the nationwide crisis impacting automotive customers, dealers and manufacturers.

Forecasters believe the shortage could last for at least another year, further impacting consumers' ability to get a new car at the price they want.

"We've hit a spot that supply is tight, and we have to pay the price," said Brian Long, who conducted the analysis and is the director of supply chain management at Grand Valley State University. "This has happened during many crises. I remember standing in line for gas not that many years ago. We had to pay the price even though it was ridiculous, and obviously, over time, that crisis did resolve itself. That, I'm afraid, is going to be the case here too."

New cars need computer chips to drive, but as Long explains, the production of cars is largely outsourced overseas and shared with other industries, which caused issues to arise during the COVID-19 pandemic.

For example, automakers trimmed orders for computer chips and other parts when auto sales fell in the early weeks of March 2020. When sales rebounded much faster, companies could not adjust since the supply of chips had already gone to other customers.

"You're supposed to know your entire supply chain and all of the risks in that supply chain," Long said.

Toyota of Grand Rapids said that their inventory has gone from 100 new cars in stock to just five or six since the spring.

Joe Adams, the general manager of Toyota of Grand Rapids, says the showroom is ordering directly from the factory to help meet customer needs. But it takes anywhere from two to four weeks for cars to arrive. He says the price is never above a car's MSRP.

Adams adds the chip shortage drove a need for used cars. He estimates that there are 180 used cars on their lot. He says before the pandemic, there were around 120 used cars. However, prices for the vehicles have been higher than usual.

"We do our best to make sure our guests are being taken care of in the same fashion," Adams said. "It just becomes an ever-adapting position."

According to ISM-GRR, the September seasonally adjusted sales rate (SAAR) fell to 12.1 million units, down from the April SAAR of 18.5 million units. Light vehicle sales fell by 12.9% in the third quarter.

Long says rolling layoffs at auto part manufacturers in West Michigan may be possible, but the loss in growth is what worries him. The industry has been behind much of the region's growth for the last decade.

Without the computer chips, manufacturers are sitting idly until the supply increases.

"We have identified a few suppliers in West Michigan that can go toe-to-toe in the world market for automotive parts, and they were projected to grow, and now they're going to be prohibited from growing," Long said. "I believe we're going to bring a lot of chip manufacturing back to this country, and I think you're also going to see some industries, like automotive, go out and identify a company — a small company possibly. They're going to buy it, and the entire production will be dedicated to that particular firm."

For now, Long says the only solution is to ride out the supply chain issues.

This story was originally published by Marisa Oberle on Scripps station WXMI in Grand Rapids, Michigan.