Demand rises putting further pressure on semi-conductor shortage

Hands in gloves hold chip testing microelectronics. Setting operating modes electronic controllers.

It appears the semi-conductor shortage will have more effect than originally thought - Credit: Ivan-balvan/iStock/Getty Images Plus

With showrooms open in April for only 18 days, new car sales surged and demand is expected to continue for the remainder of 2021.

Van sales recorded the best ever April result with registrations up 23.8 per cent on the previous five-year average and are back to 2019 levels.

At the same time March UK engine production rose 31.7 per cent and commercial vehicle production was up 16.9 per cent.

In the new car market vehicles with some electrical power reached over a third of all sales in April.

All this makes positive reading for the motor industry after one of the most difficult periods in their history but it appears the semi-conductor shortage will have more effect than originally thought and is likely to last longer than predicted.

Why has this happened?

Lockdown has caused increased demand for graphics processing units, used by gamers, TVs, and laptops as work and leisure have adapted to deal with the pandemic.

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The perfect storm has occurred as factories closed, freezing temperatures in Texas caused chip plants to close as a result of power outage, and a fire in March at a Japanese factory which made chips for cars added to the problem.

The number of chips used in cars has increased dramatically as more electronics were fitted not only for braking, engine management systems, and power steering. Self-parking, lane discipline, rear view cameras are a few examples.

Chip manufacturers have switched supply to products which give them better margins such as smartphones, gaming machines and domestic appliances.

China has also stockpiled chips made in the USA as a hedge for possible political repercussions.

So, what does this mean for car and commercial vehicle buyers? 

The backlog from March will cause demand to continue right the way through June and with the next plate change in September, will remain throughout the rest of the year.

Ford, General Motors and Volkswagen have been forced to cut output and close factories and Stellantis, which owns, Peugeot, Vauxhall, Fiat, Jeep and Alfa Romeo have warned of disruption into next year.

Vans are already in very short supply and some products will not be available until March 2022.

If new cars and vans are not available the used car market will also be affected and already it is evident from the auctions where prices are rising every week.

If you are thinking of a change in the next six months it is advisable to talk to your dealer now. For certain products manufacturers will have to consider the extension of leases where they are unable to supply so it will allow you to plan ahead.

The used car position will remain difficult and the longer you wait the less choice and a higher price may be a surprise you do not want. 

How long will it last?

It is almost impossible to predict as world demand following the pandemic is hard to quantify but many consumers have money to spend and demand for domestic appliances, smartphones and gaming devices will add to the shortage.

The return to normality was never going to be smooth but the news is certainly positive on new cases of the virus and vaccine coverage, so we can all be positive. 

Stay safe and keep smiling. I look forward to next week.