The lack of computer chips is driving up the cost of new and used cars, delaying electronic shipments, and delaying the recovery from the Covid-19 pandemic.
“It’s a huge problem,” Commerce Secretary Gina Raimondo told CNN ahead of leading a White House meeting with manufacturers and users of computer chips. “Everything in your life that has an on-off switch requires semiconductors. Your phone, your car, all of the electronics around you.”
According to consulting firm AlixPartners, the chip shortage, along with other supply chain issues, will cost the global auto industry alone $210 billion in lost sales this year. That’s nearly twice as much as the company predicted in May, when many auto executives hoped the chip shortage would be over by the middle of the year.
Although Covid, extreme weather, and other factors are primarily to blame for the worldwide shortage of computer chips, the lack of a critical component also exposes a long-standing vulnerability in America’s intricate supply chain.
“The reason we’re really in this mess is because for a long time, we haven’t invested,” said Raimondo, a former venture capitalist and governor of Rhode Island. “We took our eye off the ball. We used to lead the world in semiconductor manufacturing and now we don’t. We just disinvested.”
According to the Semiconductor Industry Association, the United States’ share of global semiconductor manufacturing fell to just 12% last year. This is a decrease from 37% in 1990. The trade group blamed foreign governments for providing “substantial” subsidies that put the US at a “competitive disadvantage.”
The Biden administration has pushed Congress to pass a $52 billion bill to encourage increased semiconductor production and research in the US. The CHIPS for America Act was passed by the US Senate in June but has yet to be voted on by the House.
“It’s pretty simple. We need to make more chips in America,” Raimondo said.
However, passage of that bill would have little immediate impact on the ongoing chip shortage, which is contributing to rising inflation in the United States and consumer sticker shock.
Raimondo acknowledged that the semiconductor shortages will be a problem during the holiday shopping season, when demand for smartphones, tablets, video game consoles, personal speakers, and other electronic devices is expected to skyrocket.
“Hopefully it won’t be horribly felt,” she said, adding that electronics companies have been mostly able to keep up with demand. “But it will be more of what we’re seeing: Essentially higher prices and fewer options.”
The chip shortage is wreaking havoc on the automotive industry.
Due to a chip shortage, General Motors (GM) shut down production at most of its North American plants for a week or two in early September. The supply problems have been exacerbated by an increase in Covid cases, particularly in Southeast Asia, where semiconductor factories are located.
Car dealerships have few vehicles in inventory due to production outages, and consumers are paying more for the cars they can find.
Consider a Ford dealership in Mahwah, New Jersey, which typically has 300 new cars on the lot. Because of the production outages, it now only has about a dozen.
“We’ve never seen this. It’s definitely a first for all of us,” Aaron Ringus, sales manager at Mahwah Ford, told CNN earlier this month.
The lack of new cars, combined with the fact that rental car companies are keeping their fleets rather than selling them, has contributed to a rise in used car prices.
The chip shortage is one of the many challenges facing the US economy as it recovers from the pandemic, according to Federal Reserve Chairman Jerome Powell.
“In some industries, near-term supply constraints are restraining activity,” Powell said during Wednesday’s press conference. “These constraints are particularly acute in the motor vehicle industry, where the worldwide shortage of semiconductors has sharply curtailed production.”
Unfortunately, the shortages of semiconductors aren’t going away anytime soon.
“Honestly I think we’re going to be struggling with it well into next year until we can really smooth out some of these bottlenecks,” Raimondo said. “It’s not going to be this bad, but I don’t think it will be back to normal until well into 2022.”
Pat Gelsinger, the CEO of Intel (INTC), has warned that the shortage could last even longer, possibly until 2023.
Raimondo conceded that timeline is “not out of the question,” adding that officials are “going to work hard to do better than that.”
On Thursday, the Commerce Department and the White House convened chip makers and buyers, including Apple (AAPL), Microsoft (MSFT), and General Motors (GM), in an effort to address supply issues.
The Semiconductor Industry Association praised Biden’s administration for taking “a series of decisive steps toward strengthening US chip production and innovation,” including meeting with industry leaders and championing the CHIPS for America Act, in a statement.
“We appreciate their ongoing efforts.”
Officials from Biden’s office are also launching a rapid response hotline, which will allow businesses to notify the government immediately if there are any disruptions caused by Covid outbreaks, extreme weather, or wildfires.
Raimondo also asked the industry to provide the federal government with more information about their complex supply chains during the virtual White House summit. The voluntary survey’s goal is to ensure that computer chips get to where they’re needed and to gain a better understanding of potential bottlenecks. Officials from the White House claim that the data can also help attract more private investment to build new factories by providing information on demand.