Car Deals Vanished During the Pandemic. They're Coming Back.

The global shortage of computer chips and other parts played a significant role in the automotive industry during the pandemic4. The shortage was caused by a combination of factors, including increased demand for electronics due to changes in consumer behavior, supply chain disruptions, and capacity constraints at semiconductor fabrication plants.

During the early stages of the pandemic, automakers experienced a decline in sales as demand for vehicles plummeted. As a result, they reduced their orders for semiconductors and other components. However, demand for vehicles rebounded faster than anticipated in the second half of 2020, and automakers found themselves competing with other industries for limited semiconductor supplies.

The semiconductor shortage forced automakers to cut production, leading to a scarcity of new vehicles in showrooms. This allowed automakers and dealers to command high prices and scrap most sales incentives, resulting in consumers paying full price or even higher for vehicles.

The chip shortage also highlighted the importance of semiconductors in modern vehicles, which are crucial for safety features, infotainment systems, and electronic control units. The shortage prompted the automotive industry to order surplus semiconductors and prioritize the development of strategic partnerships with semiconductor suppliers to avoid similar disruptions in the future.

In summary, the global shortage of computer chips and other parts during the pandemic significantly impacted the automotive industry, leading to production cuts, higher vehicle prices, and a renewed focus on securing semiconductor supplies.

The scarcity of vehicles in showrooms due to the pandemic and the global chip shortage led to a shift in sales incentives and pricing strategies in the automotive industry. With limited inventory, automakers and dealers were able to eliminate most sales incentives and command higher prices6. This allowed dealers to add thousands of dollars to the manufacturer's suggested retail price, and some people even started buying and flipping in-demand cars for profit. In essence, the reduced supply led to an increase in prices and a decrease in the need for sales incentives. However, as chip supplies have recovered and production has ramped up, dealer inventories are growing, and automakers are once again offering discounts to stimulate sales.