Despite the chip shortage, demand from the auto industry is increasing

The pandemic is affecting industries around the world, especially those that rely on high-tech microchips to make products. The supply of microchips is low because of the work stoppage related to the pandemic, which has hit the auto industry particularly hard. All automakers have seen a shortage of microchips associated with the pandemic, leading some automakers to stop producing certain models or vehicles without critical components that require microchips.

Despite the pandemic-related shortages, there is still demand for cars and car sales are on the rise. As the pandemic begins to ease, a major trade show is being held in person again for the first time in two years. One notable one is the SEMA trade show, where automakers traditionally show new cars and highly customized vehicles to the masses.

Carmakers around the world are looking for ways to reduce their reliance on microchips and access the raw materials needed to build vehicles on demand. One interesting revelation from Mike Spagnola, VP of Product Development and OE relationships at SEMA, is that while the supply chain is currently suffering, business has been strong because many people are staying home and choosing to work in their cars. This has led to strong sales for many of the industry's aftermarket suppliers.

Shortages of microchips and materials have also affected these aftermarket manufacturers. Many manufactured parts are added by car owners to their vehicles to improve performance, capability and style. A representative at the SEMA show said they expected the shortage to continue into next year, but manufacturers were working to address the shortage and cars were available for drivers to buy.

Depending on the country/region you live in, there may not be many cars available, as anyone who has been forced to buy a new car in recent months can testify. The high prices of used cars often force many consumers to look for new cars instead. To take a personal example, recently, my wife's 2014 Ford Fiesta, a model notorious for gearbox problems, suffered a gearbox failure. We live on the front edge of the Colorado Rockies, and her commute takes her through a mountain pass without cellular coverage, where freezing temperatures can kill stranded motorists.

Rather than risk another transmission failure, we chose to buy a different car. In many cases, used cars are worth their brand new price, despite being several years old and having tens of thousands of miles on the odometer. We decided that if we had to pay for a new car, we would just buy a new one. Within 500 miles, however, the supply of economy cars for $25,000 or less is tight. No new Toyota Corolla, Hyundai Elantra, Honda Civic or Kia Ford within 500 miles. But we were able to find an undiscounted mid-range Nissan Sentra SV on the MSRP for the same price as a used model with tens of thousands of miles on it.

The upside of the chip shortage is that it's a good time to sell used cars. If you're stuck with a vehicle lease or loan you don't like, many car dealers are willing to spend more than usual to buy a lease or pay off the car you still have money on because you don't like it anymore. Another personal example, I was able to get rid of a lease on a Jeep Renegade that I no longer wanted because jeep dealers were desperate for anything but a high-end Grand Cherokee and wrangler. This is the car I tried to get rid of six months ago and had to pay thousands of dollars out of my own pocket. Interestingly, when I checked the dealer's website a few days later, the Renegade was selling for $1,000 more than a year ago and 11,500 miles brand new.

Chip shortages and pandemics have undoubtedly led to changes in many industries and many people's lives. The upside is that you may no longer need a used car to be worth more, and many companies have realized that it's OK to allow people to work from home, which is a good thing for many people.