Motor Mouth: Why a chip shortage is rocking the automotive world

Motor Mouth: Why a chip shortage is rocking the automotive world

November 22, 2021 Off By iwano@_84

Table of Contents

Sales are plummeting and consumers are pissed — how a few (billion) transistors are holding the entire auto industry hostage

Article content

Peugeot recently downgraded some its cars’ Fancy Dan digital instrument gauge sets to retro-tech analog speedometers. BMW has had to ship some of its new cars and SUVs without the touchscreens that are now part and parcel of every luxury sedan’s infotainment system. Perhaps less dramatic, but assuredly more costly, General Motors is delivering some of its big V8s without the cylinder de-activation systems that are touted to reduce their gas consumption.

Article content

Cars, in case you haven’t noticed, are are in short supply, Statistics Canada telling us just last week that auto sales fell some 35.6 per cent in September — not because consumers didn’t want to buy them, but because dealers had no cars to sell. According to CNBC, 7.7 million units of production worldwide will be lost in 2021 alone , costing the global auto industry an incredible US$210 billion. However, with more customers chasing fewer cars, J.D. Power recorded the biggest year-over-year increase in per-car spending, with September’s US$42,802 average transaction price a whopping US$12,000 higher than the same month a year’s previous.

Those might be American numbers, but anyone expecting Canada’s traditional incentive-laden December — as automakers look to fire-sale out old inventory before the new 2022s arrive — is probably going to be very disappointed. Hell, try getting a deal even on a used car these days. For the first time in my career in this industry, we’re living in a seller’s market.

Article content

As we can all probably recite by rote now, it’s all because there’s a computer chip supply chain problem. But what are these chipsets used for? Why are they in such short supply? And, of course, the biggest question of all, when can we expect this paucity of computing power to be over so we can all go back to the long-held traditional of putting the thumb-screws to our local car salesperson? Motor Mouth did some digging and the answers are, unsurprisingly, not nearly as simple as we’ve been lead to believe.

We’re not talking rocket science, here

The average Joe — or at least this average Joe — hears about a computer chip shortage and imagines that we’re talking about some incredibly complicated, absolutely indispensable microprocessor that actually prevents the car from being driven, or at least compromises some key safety device.

Article content

In fact, the far bigger issue is the common everyday basic microcontroller — literally costing just a few dollars, or even cents, on an economies-of-scale basis — rather than the superchips that power our fuel-injection ECUs and the controllers that make anti-lock brakes safer. The power-integrated circuits required to allow a seat heater its multiple-setting variability and the sensors that allow a GM small-block to stop firing the number-seven spark plug to save a few wisps of fossil fuels may be the very simplest expression of the modern micro-transistor, but there are literally hundreds of them in virtually any car — luxury or mainstream — and the loss of even a few places a huge — and completely unheard of before today — strain on the auto manufacturing process.

Article content

How did we get into this mess?

Well, the canned answer is that, back in early 2020, the auto industry predicted (totally understandably at the time) that the COVID-19 crisis would have a more lasting effect on the economy, and therefore downgraded its long-term production plans. The unexpectedly quick rebound in consumer confidence and the resulting demand caught automakers  — and their suppliers — off guard. They’ve been playing catch up ever since. That’s the story line at least.

Production of the all-new 2021 Ford Bronco at the Michigan Assembly Plant
Production of the all-new 2021 Ford Bronco at the Michigan Assembly Plant Photo by Ford

However, while there may be truth to that explanation, the issue is actually far more complicated and, therefore, less easily resolved. First off, the huge ramp-up in cloud computing, 5G networks, and other chip-based computer staples outside of the auto industry would have put a huge squeeze on microchip supply even without the coronavirus crisis. According to Wired , demand for microchips in the market at large went up an incredible 29.7 per cent in the 12 months between August 2020 and August 2021, despite the shortage-inspired decline in auto production. Indeed, as the magazine points out, the cell phone business alone dwarves the auto industry, and its need for advanced circuitry is nothing short of rapacious.

Article content

The aspect less discussed is that the market for microchips — especially that for the basic, retro-tech chips that are in short supply — is comparatively low-profit. Few existing chipmakers are looking to expand their supply of these low-margin products, and if Wired’s “Why the Chip Shortage Drags On and On… and On” is any indication, few are the start-ups that want to jump into the business.


The other, possibly very troubling, part of this equation is that the powerhouse in chip manufacturing is Taiwan, which, if you’ve been reading enough news to know there’s a chip shortage, you might know is coming under increasing pressure from Mainland China. The Biden administration has been making much ado about its new multi-billion plan to support domestic chip builders, but behind the scenes you can bet your sweet bippy that the President’s recent tougher stand on Taiwan’s quasi-independence — “We strongly oppose unilateral efforts to change the status quo” — is at least, in part, guided by a need to keep the island’s chip exports humming.

Article content

How have automakers responded to the crisis?

Almost all automakers have responded by doing what the New York Times has so aptly called “triaging” their chip supply, namely reserving those chips in shortest supply for their highest-ticket — and most profitable — products. Some, like BMW, have made compromises to their vehicles’ features; according to The Verge , the German manufacturer is also, for example, dropping its backup-camera assistant feature on some models — 3 Series sedans, as well as X4, X6, and X7 SUVs. Others, like Porsche, have opted to not ship out some of their new Macans until they can get enough microcontrollers to supply them all with heated seats.

The problem, as we mentioned in Driving into the Future’s recent expose on the chip crisis , is that it’s unlikely that any of theses chip-deficient cars will be able to be retrofitted with the requisite computer controls. Replacing entire gauge sets is probably not in Peugeot’s future, BMW has already said that upgraded touchscreens will be impossible, and, as George Iny, the director of the Automobile Protection Association, mentioned in our recent Driving into the Future panel, GM is probably not going to retrofit cylinder deactivation chips to its pickups (which, by the way, may have to be accounted for in its fleet fuel economy ratings). How this affects the resale value of these cars is yet to be determined, but, if the shortage persists, the residual values of many cars will take a serious hit in the future.

Article content

BMW i4 M50
BMW i4 M50 Photo by BMW

When is this all going to end?

Well, isn’t that the $64-trillion question? Answers range from as early as mid-2022; all the way out to the end of 2024. The optimistic take is that simple laws of supply and demand will soon solve the situation, the higher cost of the current limited supply — Wired claims that chips that used to sell for a couple of bucks are now going for us as much as US$150 a piece — attracting new players and plants to quickly correct the shortage. Others point out that even though the Taiwan Semiconductor Manufacturing Company — which, according to , boasts 51 per cent of the globe’s chip production, making it, by far, the largest producer in the world — has announced that it will build a new plant to manufacture more of these, older simpler components, production probably won’t be up and running until 2024.

Making the issue even worse is that, as Daniel Ross, senior automotive analyst for Canadian Black Book, mentioned in our 2022 new car preview panel, tires and magnesium are also in short supply. Microchips may be the most obvious problem hobbling the automotive industry, but it most certainly won’t be the only one.


Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.