Nexperia CHIP CRISIS BREAKS THE CAR MARKET | Episode 953

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How are you today, handsome?

Doing pretty good.

I'm actually a little tired,

but I think the show will wake me up

because holy cow, folks, the next period chip crisis,

it is heating up.

We've got the latest news on what's going on.

Another semiconductor shortage impacting the auto industry

could have massive ramifications.

We've got some warning signs coming from Nissan,

as well as Mercedes-Benz, Volkswagen, et cetera.

So we're going to review that news.

But before we do, our sites show you fake prices.

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Dad.

Yes.

Chip Talk.

I could have used the headline in automotive news this morning.

Nissan and Mercedes-Benz sound alarm over chip supply crisis.

But I went with Xperia chip crisis breaks the car market.

Talks me about what's going on here.

What did Nissan say?

What did Mercedes-Benz say?

Do we really have another chip to get in among us?

Yeah.

I'm afraid so.

And this time, it really has nothing to do with all the canceled

chip orders that the manufacturers had during the pandemic.

Do you want to start back in going down memory lane?

What happened a couple of years ago?

Because this is not the first time our audience, our community,

has heard us talk about it, chip crisis.

What was the first chip crisis?

Way back when, five years ago, during the pandemic,

when dealerships were closed, when manufacturers were shut down,

they decided that they would cancel their chip orders that they had

with the various chip manufacturers.

Now, here's what you have to realize.

That the chips that are used in automobiles are the least

profitable and older-style chips.

So when those...

It's called semi-conductors.

Yeah.

So when those semi-conductor were canceled, those orders were

canceled, the semi-conductor manufacturers, the chip manufacturers

found others who needed chips and they were the more expensive,

more profitable chips.

So when dealerships reopened and manufacturers reopened,

guess what they needed?

They needed those semi-conductors, but they had canceled their orders.

And the manufacturers said, well, unfortunately for you,

we've now turned that production capability over to other chips

for other sources and we can't just start producing the semi-conductors

you need and that's what created this shortage.

And that is what caused production to drop dramatically.

Globally, there were around 15 million new vehicles that were supposed

to have been produced that were not because the semi-conductors

weren't available.

And in many cases, manufacturers produced vehicles without all the

semi-conductors they needed with the promise that when they became

available, they would then install them and they would have

functionalities in their vehicles that they didn't have

because chips were missing.

A really common thing that we saw were heated seats not actually

being in the vehicle that was being produced and sold to customers

with the promise that we'll come back and we'll add heated seats

because to your point, the semi-conductors weren't available

to produce the vehicle at that time.

That was 2020 to 2023.

It's been two years post-chip shortage.

Manufacturers have been able to produce vehicles everywhere.

Everything's been hunky-dory all good.

Now we are at another moment in time where we have a chip shortage

and again, the headline this morning comes by way of Nissan

and Mercedes-Benz executives at both companies essentially coming out

and saying, guys, this could be catastrophic for our businesses.

There was also the head of Bosch coming out and making comments

about how impactful this current issue with Nexperia will be.

Let's talk a little bit here, Dad.

What is going on this time around?

To be clear, it has to do with one company, one company,

not 10, not 100, one company, Nexperia.

What's going on here and why has it potentially gotten worse?

This is one company that produces 40% of the

semiconductor chips that manufacturers need both in Europe

and the United States for their automobiles.

The issue today is more of a political issue

and not of, well, you canceled your orders

and we've given that production space over to others.

This is a situation where Nexperia, which is a Dutch company,

had some involvement with the Chinese, the Wingtec,

I think it was called, and the government was concerned

that the Chinese were stealing the intellectual property

and everything that they needed to produce the chips themselves

in China as opposed to continuing to produce the chips

in the homeland and in Europe.

The Dutch government took over control of Nexperia

and the Chinese said, well, you do that

and we will hold all those chips in abeyance

because that's not the way you should act towards us.

The whole thing is political at this point

and how do you get this resolved in a timely enough manner

so that it won't impact the international automotive manufacturers

producing their vehicles?

The thing is, it already has.

It already has.

Dad Honda has already reduced or suspended some of their production

at several of their plants here in North America.

VW has said production at its factories is only secured through October

but there will be impacts in November.

Bosch, the executives at Bosch came out

and said that they're planning on furloughing workers

moving forward because of this.

The Nexperia chip crisis is the latest and greatest excuse

for the auto industry to talk about when we need a scapegoat

for inventories were finally starting to build back up.

It's very much looking like a buyer's market in terms of

not enough demand, too much supply.

Now you have a new chip crisis that's going to break the car market.

Again, to be very clear, already impacting production at Honda,

already impacting one of the largest automakers in the world,

Nissan's executives came out today and expressed real concern.

Mercedes-Benz as well, VW, Bosch.

The list is growing here of automakers and parts suppliers

who are saying, hey, this is going to have a big ramification

on the global auto industry.

It makes you wonder how long it can last

because everyone's dependent upon these companies,

but it will have a real cost to production.

I'm pretty sure China is in a position of leverage, unfortunately.

This just shows how small the world really is

and how interdependent we are whether you be here in the United States

or you're in Europe or you're in Asia.

It's all interconnected and world trade is behind all this

so that when countries have a dispute like this,

have you bring them to the table so that they can resolve this

so that it doesn't have major impacts across the industrial world?

I don't know how you do it.

I mean, the head of Mercedes-Benz said this is different than everything else.

This is truly a political issue.

It is not a manufacturing issue.

It is not anything other than two countries fighting over these chips

and who should control it and whose intellectual property is it.

If you would have said to me 50 years ago,

there's going to be a point in your life where you're going to be talking about semiconductors

because the Dutch and the Chinese just can't get along.

I would have looked at you and I would have said,

you're out of your damn mind.

What do I know about semiconductors?

Why isn't it 74?

I have to learn all about semiconductors.

It is the most basic ridiculous thing I've ever heard.

People are complaining at Mercedes-Benz,

well, you should have had dual suppliers for this stuff.

They said, who knew that politics were going to get involved?

You have dual suppliers for a lot of things.

This was something that they didn't think they'd have to worry about.

We are on the cusp, if not into at least in this country,

somewhat of a buyer's market when it comes to buying new vehicles.

Absolutely.

This is one of those extraneous issues that we would not have foreseen

that will cartel production, bring down inventories,

and return leverage to these sellers as it's being taken away from the buyer.

Everything that you have to concern yourself with is,

I don't know how you're supposed to keep track of it all.

It's really hard to keep track of it all.

Hey, one other part of this story.

You can't just swap out one semiconductor for another semiconductor.

The thing that I'm hitting on here is this idea of validation.

You actually have to validate that the alternative sources that you're using

to bring parts into a vehicle do exactly what you need them to do.

That's a huge component to this, not to use the word component too many times.

That's a huge component to this, is that those individual components need to be validated.

Not to mention the fact that you take 40% of the supply out of the market.

It's not like all the other manufacturers can step up and fill that void instantly.

Dad, do you know how many semiconductors are in a car on average,

a new car produced today?

Give me a range here. You can give me a range.

I'm going to say 5 to 600.

It's somewhere between 300 and 600 semiconductors in the average new car today.

Most all of those semiconductors are legacy old school semiconductors.

To your point earlier, this is very different than what happened a few years ago

when the manufacturers of semiconductors chose to produce more high profit margin

semiconductors and not produce legacy semiconductors for their automotive clients.

This is purely an explicitly legacy semiconductor manufacturer

being taken offline for political reasons and will have a material potential

to have a material impact here in the United States on what was becoming a buyer's market,

could flip it back to be in a seller's market, which would be a damn shame

if it's the case because holy cow, buyer's market in Q4,

and that's like the best possible scenario for car shoppers.

So we're going to keep our eyes close to this one, very close to this one

because it'll have huge ramifications if it continues to spread

and the moment that it goes away, the moment that there's a resolution,

which I believe there is an off-ramp here and there will be a resolution,

that's a day we should be excited for because it means ultimately

inventories will keep building and we'll have better deals.

And the real problem is I see it.

And I am not an international expert by any stretch of the imagination.

But the fact that these are legacy chips that are some of the least profitable

semiconductors to be produced, well, kind of sort of precludes any other chip

manufacturer from saying, oh, let's make huge billion-dollar investments

in these least profitable chips so that we can be a bigger player there.

You know, it's like every other manufacturer, they're looking for ways

to increase profit margins, not decrease profit margins.

So they're going to continue to invest money in facilities

that will allow them to produce the most profitable chips.

And so this type of disruption is the type where there's not going to be

a lot of other chip manufacturers out there saying,

well, here we're going to jump in and save the day.

They're probably saying to the automobile manufacturers,

you need to figure out how to start utilizing our profit margin newer semiconductors.

And then we might actually be able to help you.

Yeah, I completely agree, Pops.

There's not an incentive right now to switch gears and operate differently.

Talk about switching gears.

Terrific exposed importer Mitsubishi up's destination fee to among industries

highest. We've been talking about this all week and we've been talking about for a while.

Manufacturers of vehicles are masking the fact that they are increasing

the prices of their vehicles by jacking up the expense that they're charging dealers

for the destination fee, which again, to be clear, gets passed along to the consumer.

Mitsubishi had an 8% increase in the destination fee to their dealers

and to their customers. The average destination fee for Mitsubishi is,

take some guesses, folks, in the chat. Don't say it yet, Pops.

What do you think it costs a Mitsubishi dealer to ship the vehicle to have the destination fee?

Wow, that was ugly for me to say it. But what do you think it costs, folks?

It was ugly the way you phrased that, but that's the point.

I do this professionally for a living and that was pretty ugly.

We've got here $1,800 from Bubblewitch or $3,500 from David, $1,800.

These are some pretty good guesses, Pops.

Thanks.

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All right, I'll scroll down here. $1,745.

Okay, which is only $150 increase over what it had been,

which, well, equates to an 8.5% increase.

And that is across the board on every one of their models that they ship to dealers.

And the issue for Mitsubishi is that the vast majority of their customers

are not high-credit risk customers.

And these...

They're not high-credit risk customers. What do you mean by that?

A majority of them are high-credit risk customers.

Yeah, there you go. They're not prying credit customers.

They're not prying credit customers.

And so, thank you for helping my feeble brain.

And so, even though $150 might not sound like a lot of money,

and it really isn't in the grand scheme of things,

it is for people whose credit is less than perfect,

whose interest rates are higher than most as to how it impacts their monthly payment.

And the fear for Mitsubishi dealers is that even though this seems like a relatively small increase,

it drives away their customer base.

It is almost forcing Mitsubishi, kind of like Stalantis did in so many cases,

to abandon their customers, their loyal customers.

And so, it makes it much more difficult for the Mitsubishi dealers out there

to figure out how to sell those new cars.

And it's just another example of what we've been talking about all week.

General Motors, Ford, and Ram, they've all upped their destination fees

to upwards of $2,400 on some of their pickup trucks.

And it is just a profit center for the manufacturer and a way for them to mask

some of the pain that they're feeling when it comes to incentives.

Let's switch gears once more.

We talked about it a little bit yesterday.

I want to spend more time on it today.

What we're seeing in the used car market, this data, comes from Blackbook.

We are seeing significant decreases, depreciation of used car values,

similar to what we saw in 2002 and 2023.

And what I really want to hit on here, Dad, is just these two sentences.

The overall market for two to eight-year-old used vehicles fell 0.84%,

marking the steepest weekly drop since December 2023.

Newer used units, zero to two years old, also experienced a sharp decline of 0.85%,

while older 8 to 16-year-old vehicles only softened by 0.58%.

So let's talk a little bit about what's going on in the used car market.

Used car prices are declining fairly rapidly at the moment,

but less rapidly for older used vehicles, which I think is quite interesting.

Well, and what makes it interesting is the older used vehicles are in price points

that the vast majority of pre-owned used cars are looking for.

The vast majority of those buyers are looking for.

So if you're looking for a car in the $10,000 to $20,000 price range,

typically those are going to be cars that are 8 to 16 years old.

The real dilemma is the condition of these 8 to 16-year-old cars

is probably at the auction level worse than they've ever been.

But yet they still bring all the money because they still fit into that sweet spot of $10,000 to $20,000.

You know, the example that you showed the other day with the customer that bought a,

what was it, 2018 or 2007, 16 Mazda 3 that got clocked for 29.99% interest.

You know, that was a $13,900 car with 70-some thousand miles on it

that the customer ended up financing for 75 months at 562 hours a month.

And that car probably should be, instead of almost a $14,000 car,

should be a $10,000 car or it would have been in the past.

And so the fact that those type of vehicles are not appreciating as quickly or as much as the 2 to 8-year-old vehicles

is concerning for the people that need to be in that $10,000 to $20,000 price point

because what they're going to buy isn't necessarily going to be quite as reliable

as what they were hoping for it to be because the conditions of those vehicles are just, well, poor.

Yeah. Naps a little bit. Appreciate you, Igor, texting us before the show.

Some of the information he's got from the auctions, which is that more repossessed vehicles showing up at the dealer auctions

and typically repossessed vehicles are going to be of lower quality than other sources.

We can look at the Cox Automotive data, Mannheim Market data that also shows more repoed vehicles making it back.

But it is interesting to me that those vehicles that are older, more likely to be in more soft conditions,

are losing their value more slowly than the newer vehicles, which also leads me to,

if I'm not mistaken, yeah, I've got it right here.

There's something pretty wild happening in the used car market right now that car dealership guy was hitting on.

For some models, new is now cheaper than used.

This data comes from Carfax. Pandemic shortage has left few three-year-old used cars driving up the price for those vehicles

with higher loan rates that you get on a used car versus a new car, the math flips with warranties and service perks.

New cars from brands like Toyota and Honda can cost less the own than used models.

I thought this was an interesting tweet or ex post from a car dealership guy.

It's an example data of, you know, why would I buy a one, two, three-year-old used car when I could get the new one?

Well, maybe that's why those one, two, three-year-old used cars are depreciating more rapidly right now

while the 12-year-old used car is not depreciating that rapidly because there's so much demand at that $10,000 to $20,000 price point.

And, you know, I believe for the last couple of years, we here at CarEdge, you and I,

especially on this show and in some of the videos that we've done on the main channel,

have suggested that in many cases rather than buy a two or three-year-old used car,

I knew it was there. It just wasn't sure that it wanted to come out.

So instead of buying a two to three-year-old used car at whatever value,

in many cases we have said you are better off spending a few dollars more to buy that new car with the warranty

at a cheaper insert rate in that ultimately it will be less expensive

and a better value than many of these overpriced two and three-year-old used cars.

And now we're seeing it again.

Again, again, again, again. Pops, let's come here to the chat from T. Howell.

Question, do you use the CarEdge concierge program?

Do we have to know the exact car we want or can they help us narrow down a good choice out of several vehicles?

Our ask is when you sign up and you pay the $699 fee for the program,

you know the make and model of vehicle you want.

The last thing we want to do is get you to the finish line.

We've negotiated and got you a great deal and you decide because you went on a test drive for a similar vehicle.

Actually, now I'm interested in this other one.

It's not a good look for you. It's not a good look for the concierge that now needs to start the process over.

So our ask is you don't need to know the exact VIN of the vehicle you want.

You don't need to know the exact one, but you need to know the year,

the make, the model, or not even the year, the make, the model.

That's really what we need to know so that you feel comfortable with it

when we finally do present you with those options and the best ones.

So I think that's really important and a great question.

I wanted to pull that out right there.

And I say you can use the CarEdge research tool to help you decide

what might be the right vehicle by looking at how much a particular vehicle depreciates

what the overall cost are expected to be over time, what type of maintenance is required.

So that information is readily available on our website in the research tab

so that you can get all that information so you can narrow it down so you can save yourself.

G, I think I'm better off with a Mazda or a Honda as opposed to the Hyundai or the Kia

because over time, the Mazda or the Honda will actually be less expensive.

And go watch our video on test drive secrets, things that you need to know

when you go to test drive a vehicle.

Go make sure you like the feel of it as well.

From Eric, this is a great one.

I signed up for CarEdge Pro today.

I already have a couple of dealer conversations going with the CarEdge AI agent.

Interesting times we live in.

Yes, indeed.

How freaking cool.

Now, one more story I wanted to bring up today from CarFax as well.

We are seeing a huge spike in do not drive recalls.

And I'm bringing this up in the context of we cover recalls all the time here on the CarEdge.

Yes.

It's important.

It's important to identify with the fact that the quality of vehicles may not be as good today

as it was in the past.

This is interesting from CarFax.

The number of those recalls that actually have a do not drive component to them has gone up significantly.

So just thought this was interesting as quality has suffered.

And some of the things are over the air fixes, a computer screen or something like that, a vacuum.

But a lot of these are also do not drive real serious mechanical issues with these vehicles.

Absolutely.

And you need to know that as a customer.

I recently saw a new ad for Ford.

Sure.

And the tagline at the end was ready set Ford.

Okay.

You know, because they were showing like a Bronco off road this and that.

And I thought, you know, what a clever, what a clever tagline.

However, the appropriate tagline should probably be ready set recall.

You know, that if they believed in truth in advertising, that would be the tagline.

Ready set recall.

Because, you know, we haven't looked at it to the day.

How many recalls are they up to?

Should we take a shoot?

Oh my goodness.

Should we take a peek?

Let's just take a quick peek.

Any guesses how many recalls Ford is up to so far this year, folks?

What was it?

123 the last time we looked?

Something like that.

It's a lot.

What do you think?

Come on.

Put a number out there, pups.

I'm going to say we're up to 126.

126.

Any guesses in the chat?

How many recalls?

Do our dear friends at Ford have?

Jared says 150, 200.

No, probably shouldn't be, but it's not that bad yet.

129.

151 for reference here.

129.

Lots of 129s.

For reference here, the prior year recall record was 69 from General Motors.

It's 69.

127.

No one's hitting on the money yet.

All right.

You ready, pups?

Yeah.

Drum roll, please.

128.

Wow.

Ready, set, recall.

Oh my God.

Yeah.

So I'm just thinking that that really should be their tagline.

It won't be, but it should be.

If we believed in truth in advertising, that is what their tagline would be.

Well, their advertising is honest.

It's just, would they want to put that message forward?

Yeah.

I don't know about that.

The message we're putting forward though, folks, is back at CarEdge.com.

We've got this limited time offer to help you out.

So please, please, please take advantage of it.

Sorry, pups.

Didn't need to cut you off there.

I was just going to say, you know, the truth of the matter is at Ford is nobody's going

to know you better than our service staff.

Yeah.

If you really like the service department of your local Ford dealership, I think it's

a great, great option for you to pick up a new one.

Hey, well, let's call it a show for today, pups.

We'll be back tomorrow with more CarEdge live.

I don't know.

Oh, I was going to have a guest tomorrow.

We'll have a guest tomorrow.

Actually, Joe Lewis.

And Friday.

Yeah.

Yep, we do.

Joe Lewis from J.C.

Lewis, Mazda and Ford.

Lincoln will be joining us tomorrow.

So tune in for Joe.

He always gives such great insights.

He's really, really, really excited about that.

So Joe will be on with us tomorrow.

Dad, looking forward to that conversation.

Absolutely.

I was thrilled when I saw that Joe could carve out some time at the end of the month

to come visit with us tomorrow.

Exactly.

Well, tune in tomorrow, folks.

We'll be back with more CarEdge live.

Check out the website, caredge.com and pups.

Enjoy the afternoon.

I love you.

I love you too.

You have a great rest of your day, young man.

I hope this show woke you up a bit.

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Nexperia CHIP CRISIS BREAKS THE CAR MARKET | Episode 953

About this episode

semiconductor shortage

Volkswagen

Mercedes-Benz

CarEdge.com

chip supply crisis

Nissan

chip shortage

Honda

Bosch

legacy semiconductors

destination fee

Mitsubishi

Ram

General Motors

Mazda 3

interest rate

financing

price point

Toyota

depreciation

Hyundai

Kia

over the air fixes

Ford Bronco

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