What the Microchip Shortage Means for Dealerships Looking Ahead
Published on by Barnes Dennig in Automobile Dealerships
During the height of the pandemic in 2020, carmakers across the world struggled to maintain adequate inventory, largely due to a global microchip shortage, and had to find new ways to shore up revenue and profit – we shared insights on how they managed in a recent video, available on demand.
Fast forward to the beginning of 2023 as the microchip shortage has slowly improved, enabling dealerships to build more inventory on their lots to sell – but we’re not out of the woods yet. Overall, the industry is still about 10% undersupplied on semiconductors, compared to about 20% last year, though the situation has been improving steadily.
How auto manufacturers are managing
As of now, automakers are using a variety of approaches to manage the ongoing chip deficit, starting with plans to cut roughly 2.8 million vehicles from production schedules. Additionally, some are looking inward, trying to cut back on vehicle features that are low volume, but which complicate supply chains. Others are looking outward, reviewing their supply chains to see what component makers could do differently, and pressing them to make those changes.
What dealerships can do
It’s possible we won’t return to pre-pandemic supply levels, so it’s important for automobile dealerships to continue planning, executing, and periodically reassessing their strategy throughout the year to adapt to rapid changes in the industry.
The industry power shift
Over the past couple of years, there’s been a big power shift in the industry. A few years ago, the original equipment manufacturers (OEMs) and tier 1 suppliers held the power in their mutual relationships and were able to dictate the negotiating terms. In the face of the ongoing microchip shortage, the power has shifted to the semiconductor workers, who are now able to dictate terms – a change that seems unlikely to revert given the current conditions and foreseeable future outlook.
This is another interesting effect of the COVID-19 pandemic on supply chains throughout the industry – and dealers will have to continue adapting to evolving supply chain issues going forward.
Innovative business practices fuel dealership profits
Still, thanks to innovative business practices, profits have remained strong, and the growing supply of available vehicles gives a hopeful outlook. We continue to be impressed with how dealers are showing resilience through change and finding new ways to grow their businesses.
Dealership resources
If you’re looking for creative ways to drive your dealership’s profits, we’ve got you covered. For some dealerships, switching to the LIFO inventory method is driving tax savings – see what factors can make LIFO a good fit, and when to steer clear in this blog post.
You can also get insights on the Federal Trade Commission’s extension of the Safeguards Rule deadline and electric vehicle tax credits in the Inflation Reduction Act.
And if you’d like to talk through any of these topics or other ways to build your business, the Barnes Dennig team of automobile dealership professionals is here to help. Contact us – we’re here to help.