Chipageddon! What’s caused all this chaos with new car sales?

11th May, 2022

If you’ve finally decided I need to scrap my car at any stage in the past few years, you may have spotted that new car prices have risen pretty dramatically since you last checked. No problem, you think, I’ll head over to the used car market instead. Only to find that almost everyone else has beaten you to it, as used car prices have skyrocketed too. So, what the heck is going on?

They’re calling it Chipageddon. That’s quite a snappy name for a pretty complex situation with the global economy – but a lot of it is down to the global shortage of computer chips. It’s easy to underestimate exactly how often each day you use products that rely heavily on computer chips – your mobile phone is one, your games console is another. And of course, there’s your car.

While cars used to be entirely mechanical, the increasingly digitised nature of modern consumer vehicles means that computer chips are an integral aspect of their construction. Unfortunately though, since these chips are now in such short demand, that’s had an impact on the number of new cars that can be produced. People have therefore turned to the used car market instead, and prices have soared accordingly.

So, you’re probably wondering, what’s caused the phenomenon that’s now increasingly being referred to as Chipageddon?

Covid-19 and the worldwide lockdowns

You don’t need to be an expert economist to know this one was coming, so we thought we’d get it out of the way. As the full impact of the pandemic became apparent in the first few months of 2020, closures began to hit factories and the demand for computer chips started to fluctuate. That led some tech firms to order greater quantities of computer chips in advance, in an effort to protect their businesses from the unprecedented market shocks. The flipside, of course, was that businesses who were slower to react (or couldn’t financially afford to do so) bore a greater brunt of the impact as they struggled to acquire the components.

Here’s one of the real sticking points; as we’ve touched on above, the same computer chips that are used in cars are also the same ones used in consumer electronics. And as the first lockdowns were implemented, guess where demand skyrocketed. Suddenly consumer electronics were more valuable than ever; those of us working from home needed laptops and iPads to do our jobs, we needed mobile phones to ensure we could stay connected to our friends and family, and we wanted games consoles just to while away the time if we were furloughed.

All that meant huge competition at a time when most chipmaking facilities were already shut down, which ended up putting huge pressure on the supply chain for carmakers. According to some industry observers, Europe’s car manufacturers failed to stockpile enough chips from their suppliers (who were mostly based in Asia) at a time of booming global demand. Then in the second half of 2020, when many lockdowns were lifted, car sales rebounded faster than many were ready for, while the steady high demand for consumer electronics continued.

Fire at Renesas Electronics

One of the many, many secret realities brought to light by the pandemic was the world’s overwhelming reliance on Asia for semiconductor manufacture. The vast majority of chips – we’re talking 90% and over – are still produced by the Taiwan Semiconductor Manufacturing Company. (Guess where they’re based.)

Then there’s Renesas Electronics. Renesas is another key player in the global semiconductor sector, and a particularly vital supplier for carmakers, as it makes about a third of the microcontroller chips used in vehicles around the world. That meant that when a fire broke out there in mid-March 2020, just as the pandemic was kicking off, it was especially bad news for the automotive industry. The fire ripped through several floors of Renesas Electronics facilities, gutting its ultra-sensitive clean room it required for chip manufacturing.

Ultimately, it took about three months for Renesas to get fully back up to full capacity, which meant carmakers ended up bearing the brunt of millions in costs – a blow from which many argue they still haven’t recovered.

Winter storms in Texas

While Asia is unquestionably the giant of semiconductor manufacturing, the United States is ramping up its own national output, and a lot of that output is centred on the southern state of Texas. In fact, it’s the centre of semiconductor manufacturing in the US, with more facilities than any other state. These facilities have to run for 24 hours a day to remain economically viable, and even a few hours of downtime can have major implications.

So, when a winter storm rolled in around February 2021, causing production to be shut down for a full month, it’s safe to say that it could rarely have come at a worse time. The shutdown cost $270 million for Samsung alone, so you can imagine the sort of wider impact it had on the global car industry at large.

US-China trade war

We have to be careful how we talk about this one, because by its nature, it’s obviously wrapped up in a lot of politics. However, the facts are these: in the days of the Donald Trump administration, both the US and China were actively engaged in a trade war with one another, one that the former president said was focused on nurturing domestic American manufacturing.

While obviously the US is under the direction of a different administration these days, incumbent president Joe Biden has so far shown no signs of scaling this back, as both countries continue to levy tit-for-tat restrictions on imports and exports against each other.

The scale and extent of the ripple effects from this are obviously a matter of some debate, but almost all trade wars share one factor in common – ultimately, it’s the consumer who’s paying the price.

So what now?

Unfortunately, it doesn’t look like there’s going to be any easy solution to Chipageddon. New cars remain notably more expensive than they have been in years past, and used car prices have skyrocketed with almost a 30% increase on certain models. (And of course, there are the people selling used cars at a higher price than they paid for them.) Carmakers have warned that it’s probably going to be quite some time before we start to see the market settle down – until then, a new car (or even a used one) is likely to make a little more of a dent in your savings than normal.

However, there is one easy way you can take some of the edge off. That’s right – when you scrap your car right here with us, at Scrap Car Network. We’ve made sure that the entire process couldn’t be easier – just enter your car reg into our homepage to get a free, no obligation instant online quote. It only takes a few seconds. Curious to find out how much your car is worth?