Computer Chip Crisis Could Send Australian Car Prices Crazy

Chips, ships and road trips.

Computer Chip Crisis Could Send Australian Car Prices Crazy

A Ferrari 488 GTB on the production line at Maranello, Italy. European car makers have been more affected by the 'chipageddon' than their Asian counterparts. Image: Greg White

In case you’ve been living under a rock the last twelve months (which all things considered, might have been a decent plan), one of the biggest effects of the COVID-19 crisis – at least in Australia – has been the ballooning of second-hand car prices.

One of the factors driving this has been a pronounced shortage of new car stock. Disruption to global trade and manufacturing thanks to the pandemic means there have been fewer new cars rolling off production lines and fewer ships bringing cars to our shores, meaning that locals have had no choice but to pick up used or second-hand cars.

To make matters worse, people have also been engaged in speculative buying to take advantage of this sticky situation, driving the prices of some cars up sky-high: take the new Suzuki Jimny, where virtually new examples of which have been going for almost double the MSRP.

Now that we’ve got over the worst of The Spicy Cough and people around the globe are returning to work, you’d think things would ease up – but there’s another, rather unanticipated factor continuing to impact Australia’s car market: a computer chip shortage that the Wall Street Journal has dubbed the ‘chipageddon’.

ABC Science’s James Purtill puts it this way:

“It’s a combination of high demand and inelastic supply (i.e. it’s hard to produce more cars quickly)… A modern car typically has about 100 microprocessors controlling everything from fuel intake to windscreen wipers. Without these chips, no new cars.”

“When car sales slumped early in the pandemic, many car makers cut production and cancelled their computer chip orders. Their spot in the queue was eagerly taken up by consumer electronics makers, who were enjoying record demand thanks to government stimulus measures and people buying webcams, laptops, monitors and other devices to be able to work from home.”

“When car sales rebounded, car makers rushed to increase production but found themselves at the back of the line for computer chips.”

Image: Port of Melbourne

Australia is more exposed to this chip shortage than many other countries as we lack the sort of large-scale computer chip manufacturing capability that countries like China, Germany or South Korea have. Although it’s somewhat of a moot point as far as the auto industry is concerned, as we no longer make cars here any more… It also shows how tech-heavy modern cars are compared to even a decade ago.

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Another disaster we’re recovering from that will continue to affect global supply chains – and therefore the delivery of new cars Down Under – is the recent Suez Canal obstruction. For almost a week, the Taiwanese container ship Ever Given was blocking the vitally important trade route, holding up billions of dollars of goods and compounding existing global economic recovery efforts. The giant ship was finally freed over the weekend but the disruption will inevitably continue to impact the auto industry.

The ‘chipageddon’ might continue to affect the global new car supply for months to come, but it won’t mean Australia will be without new cars – and it also won’t mean this insanely overheated second-hand car market will continue to stay hot.

DMARGE spoke to Carsales‘ Editor-in-Chief Mike Sinclair, who suggests that the changes to JobKeeper and JobSeeker will see less people buying cars – especially those trying to ‘flip’ cars for profit:

“This speculative buying is crazy… But it won’t last forever. There’s few cases where there’s a pot of gold at the end of it.”

“You’ll still be able to buy a new car in Australia, and not every type of car has become so unaffordable… There are still over 25,000 cars on Carsales tagged as having a ‘Good’ or ‘Great’ price. There’s plenty of reasonably priced cars.”

At least the new car waiting lists aren’t as long as those for a new Rolex…

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