The impact of chip shortage on US auto industry has been impossible to ignore. Walk onto any car dealership lot over the past few years, and you’ve felt it: the eerily empty spaces, the lack of new inventory, and the shocking sticker prices on used cars that were once affordable. This isn’t just bad luck; it’s the direct result of a global crisis that brought the American auto industry to its knees.
The culprit? Tiny slivers of silicon called semiconductors, or chips. While you can’t see them, a modern car contains hundreds of them, controlling everything from the engine and transmission to the infotainment screen and safety systems. Between 2020 and 2023, the world ran out of them.
This article breaks down exactly how the chip shortage created a crisis for the US auto industry, why it happened, and what it means for your wallet today.
The Great Miscalculation: How the Auto Industry Got Left Behind
The pandemic was the trigger, but a critical miscalculation was the cause. In early 2020, as the world locked down, automakers feared a deep recession and made a fateful decision: they canceled their semiconductor orders en masse.
This was a classic “Just-in-Time” inventory strategy gone wrong. They wanted to avoid being stuck with parts they couldn’t sell. But they overlooked a brutal power dynamic:
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- Automakers Aren’t the Top Customer: The auto industry only uses about 15% of all chips. Consumer electronics (laptops, phones, gaming consoles) use roughly 50%.
- Electronics are More Profitable: Chipmakers can often make more money selling advanced chips to companies like Apple or Nvidia than selling lower-margin automotive chips.
So, when automakers canceled their orders, chipmakers immediately reallocated that production to the booming electronics market. When car demand unexpectedly rebounded later in 2020, US automakers went back to their suppliers, only to find their spot in the queue was gone. They were now at the back of a very, very long line.
The shortage was projected to cost the global automotive industry an estimated $210 billion in lost revenue in 2021 alone.
The Impact: Silent Factories and Soaring Prices
For the average American, the consequences were tangible and painful. The crisis created a perfect storm of scarcity and high demand that reshaped the car market.
Production Comes to a Grinding Halt
The sight of massive parking lots filled with tens of thousands of brand-new but unfinished trucks—waiting for a handful of missing chips became a symbol of the crisis.
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- Massive Production Cuts: In 2021, automakers built 7.7 million fewer cars than planned. Over the course of the crisis, it’s estimated that over 35 million fewer vehicles were produced worldwide.
- GM & Ford Hit Hard: General Motors suspended production at plants across the U.S., Canada, and Mexico. Ford was forced to idle factories, prioritizing its high-margin F-150 trucks and leaving other models unfinished.
- Layoffs and Reduced Hours: These shutdowns had immediate human consequences, leading to temporary layoffs and reduced hours for thousands of American factory workers.
“De-Featuring” and Sticker Shock
This entire situation starkly shows the real-world impact of chip shortage on us auto industry.To keep some vehicles rolling off the assembly lines, manufacturers resorted to desperate measures.
They began “de-featuring” cars selling them without chip-dependent options like advanced infotainment screens, heated seats, or blind-spot monitoring systems, sometimes promising to install them later.
This extreme scarcity collided with high consumer demand, causing prices to explode:
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- New Car Prices Soared: With dealership inventories evaporating, long waiting lists became the norm, and negotiating below the sticker price became a distant memory.
- Used Car Market Chaos: The chaos spilled over into the used car market, which saw prices skyrocket. According to the U.S. Department of Commerce, the dramatic increase in vehicle prices was responsible for a full one-third of all core inflation in the United States during 2021.
The Perfect Storm: What Else Went Wrong?
While the automakers’ miscalculation was the main cause, a series of other disasters made a bad situation much worse.
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- Factory Fires: A fire at a Renesas plant in Japan, which supplies 30% of all automotive microcontrollers, crippled the supply chain for over 100 days.
- Extreme Weather: A severe winter storm in Texas in Feb 2021 forced shutdowns at major fabs owned by Samsung and NXP, key suppliers for automotive components.
- Geopolitical Tensions: The U.S.-China trade war and the Russian invasion of Ukraine disrupted the supply of essential materials like neon gas, further constraining chip production.
The Road Ahead: Will This Happen Again?
The acute shortage has eased, but the lasting impact of chip shortage on us auto industry serves as a permanent lesson. The vulnerabilities remain. The US government has responded with the CHIPS and Science Act, a massive plan to bring semiconductor manufacturing back to American soil. Companies like Intel, TSMC, and Samsung are now building new factories in states like Arizona, Ohio, and Texas.
The goal is to ensure the US automotive supply chain is never again left at the mercy of decisions made on the other side of the world.
However, the transition to Electric Vehicles (EVs) and more autonomous driving features means cars will require even more chips in the future. The industry is building resilience, but the road ahead is complex. For the American car buyer, the era of cheap, readily available vehicles may be over for good. This leads many to wonder what could be the big next tech shortage after this crisis.
Frequently Asked Questions
Q1. Is the chip shortage completely over for the auto industry?
While the widespread, acute shortage of 2020-2022 has eased, the supply chain remains fragile. Most automakers can now get the basic chips they need, but shortages still exist for specific, high-end semiconductors used in advanced features. The industry is in a much better place, but it is not completely out of the woods yet.
Q2. Why are used car prices still so high in the US?
Used car prices remain high due to the “echo effect” of the chip shortage. Because millions of new cars were not produced between 2020 and 2023, there are now fewer 1-to-3-year-old cars entering the used market. This limited supply, combined with steady demand, is keeping used car prices inflated.
Q3. Will the CHIPS and Science Act make cars cheaper?
In the long term, the CHIPS Act aims to create a more stable and resilient supply of semiconductors, which should prevent the kind of extreme price spikes we saw during the shortage. However, it is unlikely to make cars significantly cheaper in the short term, as building new chip factories takes years and is incredibly expensive.
Q4. Do electric vehicles (EVs) use more chips than gas cars?
Yes, significantly more. A typical electric vehicle can use two to three times as many semiconductor chips as a traditional internal combustion engine car. This is due to the complex battery management systems, electric powertrains, and often larger, more advanced infotainment and driver-assistance systems found in EVs.