Cars in a parking lot
Source: Pixabay

Will the Russia-Ukraine Crisis Worsen the Ongoing Car Shortage?

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Feb. 28 2022, Published 7:06 a.m. ET

Last year, there were several shortages worldwide as a result of unexpected demand post-pandemic creating supply-side bottlenecks. One thing in short supply was cars. When will the car shortage end?

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The car shortage started because of production having been shuttered due to lockdown orders and then demand recovering faster than expected. Along with incentives and financing offers, this depleted vehicle inventories quickly. The microchip shortage made matters worse.

How bad is the car shortage?

According to Tyson Jominy, vice president of J.D. Power data and analytics, the vehicle shortage started in May 2020. In Nov. 2021, inventories were was at rock bottom despite production restarting. In 2022, inventories were at 60 percent of their typical levels.

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global chip shortage cars
Source: Pixabay)

Global chip shortages exacerbated the car shortages

The factors that have created many worldwide shortages are impacting the supply of chips as well. The companies are dealing with labor shortages in production as well as logistics, resulting in chip deliveries being delayed. Demand, on the other hand, has remained robust.

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This shortage of chips, necessary componenets in cars, has impacted major automakers around the world. Tesla’s CEO Elon Musk has stated that there will be no new Tesla models released in 2022 because of the shortage, and for Toyota, the chip shortages are affecting manufacturing.

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The impact of the Russia-Ukraine conflict on chip shortages

The ongoing Russia-Ukraine crisis is expected to add to the chip shortages, as both countries are vital exporters of raw materials used in the manufacturing of chipsets. Whereas Ukraine is an important source and supplier of raw materials such as neon, Russia is a key source of palladium. According to a U.S. Commerce Department report on semiconductor supply chains, the chip shortages will persist well into the last part of 2022, and possibly 2023.

Will the car shortages end anytime soon?

The semiconductor shortage is set to keep restricting car supplies, especially as demand outpaces inventories. According to Cars.com, citing IHS Markit forecast manager Chris Hopson, “Given current inventory conditions, it’s difficult to project significant demand recovery in the first half of 2022. But we expect to exit 2022 with a pace of sales more recognizable to pre-COVID levels, setting the stage for better volume outlooks into 2023 and 2024.”

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