How to talk to your customers about the global shortages
Empty lots, delayed deliveries, unsatisfied customers. What can you do? Shortages and low inventory have impacted everybody in the automotive industry and, unfortunately, most of what is going on is out of the dealership’s power. Car manufacturers are now working at full speed to build and deliver cars but delays and low inventory persist, hovering around 20 days of supply, almost two years after the first shortages appeared when Covid-19 spread like a wildfire around the world.
So what is going on? How do you approach customers visiting your dealership on the subject? Many won’t have the full picture in mind, and while frustrated they could also, in part, blame you for these issues. He’s a brief history on the problem.
IT ALL STARTED WITH COVID AND THE CHIP SHORTAGE
Let’s focus on two words: “semiconductors” and “chips” (as in a computer’s “microchip”). To put it simply, today’s chips power the world. They are found in practically anything that runs with power. From a small home appliance, to your phone, to cars and vehicles.
Now, the Covid-19 pandemic forced many countries to go into lockdown, most of the workforce switched to remote work, but for a large number of companies this was not possible as they opted for temporary plant closures in order to ensure the safety and well-being of their employees.
Most of the global manufacturing capacity for semiconductors is located in Asia, the region first hit by the pandemic where factories grinded to a halt in the first half of 2020.
Demand for chips didn’t falter though. On the contrary it quickly increased. Stay-at-home orders around the world forced most people to adapt to remote work on the fly and demand for computers, webcams and other gadgets soared by mid 2020.
Why not increase production of chips once things stabilized? Well … semiconductors are incredibly complex and creating a single chip takes months in a controlled, sterile environment. Semiconductor factories are much more than a simple warehouse, and as such are comlex to build and maintain. As a matter of fact, some firms began building factories in 2020 but these won’t be online until the end of 2022 at the earliest. Unfortunately no company can increase production or build new factories quickly enough to meet the high and surging demand for semiconductors and chips. Car manufacturers, who also had to reduce factory output to comply with lockdowns and health related rules, found themselves in the middle of the chip supply shortage, unable to source the chips needed for infotainment and the vehicle’s safety features.
Some car manufacturers have tried to adapt quickly by reducing their use of semiconductor products. For instance you might have noticed how some models now feature analog odometers when you thought they used digital screens on their dashboards. But although this example demonstrates how manufacturers are trying to adapt they still can’t meet the output goals to fill dealers’ lots.
NOT ALL CHIPS ARE CREATED EQUAL
Have you ever wondered why your laptop seems hotter than your colleagues’ when it is just idling? Or the ever frustrating impression that it is “slow” just out of the box? Well … there can be several reasons for this. One of them is that not all semiconductors are created equal. Despite the effort from semiconductor companies to market products according to specifications and delivering the best performance, it is indeed very complicated to work on such materials and sometimes the final product suffers from slight flaws or just simply the quality of the raw material is in fact delivering slightly different performances than products of equal specs.
Most of the time these “imperfections” won’t influence a car manufacturer’s decision to implement said chips in its vehicles but slight delays in manufacturing have been reported when rigorous chip and software testing were delivering lower than optimal results and performances. Although quality and performance of raw semiconductor materials do not compromise the correct functioning of software applications by themselves, it is understandable that brands strive for flawless hardware clocking at the fastest speed, in particular when concerning the safety features of a modern car.
LONGER SHIPPING TIMES AND BACKLOGS
To add to the complexity of semiconductor manufacturing and high chip demands are the shipping issues and backlogs that are just slightly improving going into 2022. Shipping companies have run into many of the pandemic related issues that have plagued any major company in the world, labor shortages and increased costs included. The shipping delays are actually a two-fold problem as cargo ships full of goods do not have any room to anchor at U.S. ports since commercial harbors are still working at a slower pace in these unprecedented times. The result is unfortunately a longer backlog and more difficulty for U.S. manufacturers to receive parts, chips and semiconductors.
So, how can you continue to profit from your business in these unprecedented times? Read our tips on how to tackle low inventory at your dealership.
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