Nexperia CHIP CRISIS BREAKS THE CAR MARKET | Episode 953
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29:07
Term
semiconductor shortage
A semiconductor shortage means there aren't enough tiny computer chips that cars need to work properly. This can cause car manufacturers to make fewer cars, leading to less choice for buyers.
Brand
Volkswagen
Volkswagen is a well-known car brand from Germany that makes many types of cars, including the famous Beetle. They are known for making reliable and affordable vehicles.
Brand
Mercedes-Benz
Mercedes-Benz is a famous car brand from Germany that makes luxury cars and trucks. They are known for their quality and advanced technology.
Company
CarEdge.com
CarEdge.com is a website that helps people buy cars by showing them real prices and offers services to make the buying process easier.
Term
chip supply crisis
The chip supply crisis is when there aren't enough computer chips available for cars. These chips control many important features in vehicles, and without them, car manufacturers can't make as many cars as they want.
Brand
Nissan
Nissan is a car company from Japan that makes many different types of vehicles. They are facing challenges because of the shortage of computer chips needed for their cars.
Term
chip shortage
A chip shortage means there aren't enough tiny computer parts needed to make cars work properly. This can slow down how many cars companies can make and what features they can include.
Brand
Honda
Honda is a well-known car company from Japan that makes cars and motorcycles. They are famous for their reliable vehicles.
Company
Bosch
Bosch is a large company that makes parts for cars, such as brakes and engines. They supply many car manufacturers with important components.
Term
legacy semiconductors
Legacy semiconductors are older types of chips that cars still use. They help run many important functions in vehicles, even if they're not the newest technology.
Term
destination fee
The destination fee is the cost of shipping a car from the factory to the dealership. It's an extra charge you see when buying a car, and it can change depending on the brand.
Brand
Mitsubishi
Mitsubishi is a car company from Japan that makes different types of vehicles. They've been having trouble keeping their customers happy.
Brand
Ram
Ram is a brand that makes trucks and vans. They are known for being tough and are often used for work or personal driving.
Brand
General Motors
General Motors is a big car company that makes many different brands of cars, like Chevrolet and Cadillac. They are important in the car industry and often lead changes in pricing and features.
Car
Mazda 3
The Mazda 3 is a small car that is fun to drive and good on gas. It's a popular choice for people looking for an affordable and reliable vehicle.
Term
interest rate
The interest rate is how much extra money you pay when you borrow money. A higher rate means you pay more each month.
Term
financing
Financing means getting a loan to buy a car. Instead of paying all the money upfront, you pay a little each month until it's paid off.
Term
price point
A price point is a specific price that something costs. It helps people know if they can afford it or not.
Brand
Toyota
Toyota is a car company from Japan that makes many popular and reliable cars. People often choose Toyota because they last a long time and are good on gas.
Term
depreciation
Depreciation is how much a car loses value over time. New cars lose value quickly in the first few years, while older cars might not lose value as fast.
Brand
Hyundai
Hyundai is a car company from South Korea that makes a variety of vehicles, often known for being affordable and well-equipped.
Brand
Kia
Kia is another car company from South Korea that makes various cars and SUVs, often praised for their value and long warranties.
Term
over the air fixes
Over the air fixes are updates that can be sent to your car through the internet. This means your car can get repairs or improvements without needing to go to a shop.
Car
Ford Bronco
The Bronco is a type of SUV made by Ford that is designed for off-road driving. It's popular for its tough look and ability to handle rough terrains.
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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.
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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.
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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About this episode
The latest chip crisis, driven by the Dutch company Nexperia, is causing alarm among major automakers like Nissan and Mercedes-Benz. This episode dives into the political implications of the semiconductor shortage, which could disrupt production and shift the market dynamics back to a seller's market. The hosts discuss how this crisis differs from previous shortages and its potential impact on vehicle inventories and pricing. Additionally, they touch on rising destination fees and the fluctuating used car market, highlighting the challenges faced by consumers and dealers alike.
Original notes
Today on CarEdge Live, Ray and Zach discuss the latest info on the Nexperia chip crisis. Tune in to learn more! Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com
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CarEdge Live
Ray and Zach Shefska, Bleav
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29:07