WATCH: What does a computer chip shortage mean for you?

A shortage in computer chips has gripped the auto industry in the U.S. and around the globe, with factories pausing and workers idled. It’s also impacting the industries that build smart phones, video games and all kinds of consumer electronics we use every day. Lisa Fletcher tells us what’s behind the mysterious computer chip crunch.

Despite repeated pandemic lockdowns, certain parts of the economy are doing far better than anyone expected this time last year – take the car industry

Sales have been on a steady rise since last summer. In the first quarter of this year, they’re up 8 percent compared to the same period last year. Good news for the major automakers, until that is, something unexpected started happening in January.

Across the country, factories belonging to Ford, General Motors, Toyota, and other major manufacturers started slowing down, not because of low demand but because key computer chips that are part of modern vehicles aren’t available.

In March and April of last year, auto sales collapsed, many factories were idled and automakers told their component suppliers to slow or stop deliveries for everything from shock absorbers to computer chips.

But auto sales rebounded far quicker than expected, and when the car companies tried to increase their orders of computer chips, they found their suppliers already overwhelmed by other requests.

Professor Brian Gibson is an expert on supply chains at Auburn University in Alabama.

Brian Gibson: They’re basically holding people to their original forecasts in their contracts and saying, “look, we just don’t have any more capacity. We’d love to serve your demand, but you told us demand was going to be here, and now you’re asking for us to take care of you here, and it just won’t work.

And the chip shortage goes far beyond vehicles. Laptops, computer gaming systems, TVs are all in high demand, and all rely on similar semiconductors used in computer chips.

Brian Gibson: You look at a lot of the things that we went out and bought during the pandemic. Some people had to buy a new computer for work because they had to work remotely, had to buy a webcam. I had a lot of challenges with students last Fall, last Spring with we need them to have webcams. Well, for two months it was hard to buy one anywhere, so they had tried to work around.

While the global car industry buys $37 billion worth of chips a year, electronics makers buy far more. Apple alone is estimated to spend $56 billion a year.

When Sony and Microsoft launched new versions of their popular gaming systems at the end of last year, it just added to the demand and the shortages. Creating what some have called a ‘perfect storm of supply and demand.

It’s become such a concern that in April the White House called a special semiconductor summit with CEOs from Intel, other tech companies, and major automakers. The president has included $50 billion for the semiconductor industry in his $2 trillion infrastructure plan.

President Biden: Chips’ like the one I have here, these chips, these wafers, batteries, broadband — it’s all infrastructure. This is infrastructure

US and Taiwanese companies are the largest makers of computer chips but a lot of the products that use them are assembled in China, which has been stockpiling some chips, increasing the shortages.

Brian Gibson: We become overly reliant on contract manufacturing and outsourcing of things like semiconductors and batteries, and things of that nature. So who knows, maybe you’ll have other organizations do the Elon Musk thing and say, “I’m going to create my own battery factories. I’m not going to be reliant on other people.”

Analysts say it could be next year or beyond before the supply of semiconductors meets demand. So until the makers catch up with demand, you can expect to continue to see shortages.

For Full Measure, I’m Lisa Fletcher.

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3 thoughts on “WATCH: What does a computer chip shortage mean for you?”

  1. We need to make our on computer chips. We need to make anything vital to our nation’s security. China is not our friend.

    1. You can say that, but when China can make the product at a fraction of the price and you can’t pass the price increase along, what can you do?

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