Cars choke on chips Cover

The situation is already starting to wash ashore in New Zealand. The number of new cars available for sale here has never been so low. Supply to New Zealand was already under pressure, as we were far more mobile than many nations and the inability to travel overseas meant people were looking for ways to make the most of being stuck in New Zealand, so that long-awaited vehicle upgrade came to the top of the list. Buyers are registering 9000 cars a month, up from 8500 per month pre-pandemic. The increase for tradies is even more marked, up a third to 4000 light commercials a month. The government’s electric vehicle (EV) feebate scheme — which sees discounts of up to $8K for EVs but costs increasing for highemission vehicles — is also driving demand, perversely, of utes. That’s because while the discounts are being applied now, the penalties that will pay for them, of up to around $3K for high-emission utes, won’t apply until 2022. As a result, Ford said orders for its Ranger ute had shot up to 100 a day.

Meanwhile, for varying periods, carmakers were locked down creating gaps in supply, and so were the saleyards in Japan, which are the source of many used imports.

On top of that, shipping was moth-balled and, caught out by an earlier-than-expected recovery, is yet to get back to full-steam ahead. And as we learned from a freight company in these pages a few issues back, even though shipping companies say there isn’t a problem (for them, possibly), fewer ships are visiting New Zealand because they are focusing on US–Far East routes, as the US has bounced back more vigorously than expected this year. That is doubling lead times and increasing costs many times over compared with pre-Covid prices. It’s not easy to find out how much this general freight picture affects car shipments, but New Zealand usually has three months’ supply of cars on hand. It is certainly much lower now.

WHY A CHIP SHORTAGE?

The global pandemic prompted carmakers, suppliers, and car dealerships around the world to shut down. Carmakers, who have experienced previous recessions, quickly cancelled orders for parts. Then the factories restarted sooner than expected and went into overdrive to catch up with demand. Yet, in the meantime, that chip capacity, once that industry got going again too, had been gobbled up by companies making phones, computers, TVs, and other electronics, driven by people working — or simply stuck — at home. In fact, even the megalithic Apple had to delay the launch of its latest iPhone for two months because it, too, was struggling to get enough chips.

The chip deficit was further complicated by a fire at a plant owned by chipmaker Renesas Electronics in Japan. Most chips come from Taiwan, which US politicians are now calling a strategic risk. US production accounts for 12 per cent of global semiconductors, prompting calls for more US factories.

In May, global consulting company AlixPartners in Southfield, Michigan, in the US said that the chip shortages could mean 1.5- to 5-million fewer cars produced this year, cost the global car industry US$110 billion, and threaten jobs.

Car companies here are staying tight-lipped about just how bare their cupboards are because it is considered a market-sensitive issue that could affect their share price. Some might have had more robust deals with suppliers in place than others, but it’s fair to say that it’s a common problem. We understand stock of new cars is at a quarter of usual levels and the shortage of computer chips shows no sign of easing.

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