Car Chip Shortage in Supply Chain Economics

The simple story is that before the pandemic, semiconductor makers were stressed in their ability to deliver car chips for a variety of factors, including Intel production issues and U.S. restrictions on Chinese manufacturers’ sales.

When the pandemic struck, the auto industry braced for a downturn and reduced orders to suppliers. That turned out to be a mistake, but for old-line car industry purchasing managers, it seemed pretty reasonable. Their suppliers increased production as businesses resumed.

Managers who have experienced ordering dashboards and bucket seats before understood that their suppliers had no one to sell to, outside of the car industry, so they were always ready to ramp up production after a downturn.

Car sales did come back, earlier than expected. Sales rebounded in May 2020, then rose again in June, July, August, September, and October. When the vehicle buying managers called their suppliers to ask for increased deliveries, all went well—except for computer chips.

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