Despite Semiconductor Shortage, Automakers Are Seeing Big Profits
LULU GARCIA-NAVARRO, HOST:
You may have heard about the semiconductor shortage that's been shutting down auto plants. Well, here's a surprising bit of news. Automakers are actually making a lot of money, in some ways because of that shortage. NPR's Camila Domonoske joins us now to explain. Hello.
CAMILA DOMONOSKE, BYLINE: Hi.
GARCIA-NAVARRO: Camila, let's start with the basics. How bad is this semiconductor shortage?
DOMONOSKE: It's a big deal. It's a global shortage, and there are a ton of computer chips in modern cars. So it's really affecting automakers. To look at just one example, Ford is going to make a million fewer cars this year than there would if there wasn't a semiconductor shortage - a million cars.
GARCIA-NAVARRO: I mean, that sounds pretty dramatic, with some potentially awful consequences for workers in particular.
DOMONOSKE: Yeah. There are a lot of people who work at auto plants who are laid off right now because their plants are shut down because there's no chips. But if you look at the automakers, the companies themselves, Ford had a record profit last quarter. And if you look at General Motors, Stellantis, which is the company that used to be known as Fiat Chrysler, Volkswagen, production is down at all of them. But instead of making less money, they're actually making as much money as they would otherwise or even more.
GARCIA-NAVARRO: So less cars, more money - that seems counterintuitive. Explain why that is.
DOMONOSKE: Right. There's two things at play here. One is the kind of vehicles that they're making. Because they don't have enough chips to make every vehicle, they're prioritizing their biggest vehicles, their more expensive vehicles. We're talking luxury SUVs like the Escalade, full-size pickups like the Ford F-150. And they're packing these vehicles with all the features. They're making them with the priciest add-ons and selling those cars.
GARCIA-NAVARRO: Right. So when they can't make as many vehicles, they're going to only make the most expensive vehicles, which, I guess, helps their bottom line because these are expensive vehicles.
DOMONOSKE: That's right. And then to add to that, there's this second thing, which is some people have a lot of money to spend right now, and there are just fewer cars on dealer lots because they're making fewer vehicles. And you put those two things together, that means regardless of what kind of vehicle or what the features are, you're going to pay more per vehicle. Ivan Drury is the head of insights at Edmunds, a company that tracks things like car prices, and here's what he said.
IVAN DRURY: We are seeing prices like you've never seen before. When it comes to new vehicles, consumers are paying sticker price, or they're paying over sticker price. And this is unheard of. And that really is because if you're not buying, that person right behind you is.
DOMONOSKE: And when demand outstrips supply like this, you just can't haggle. And you can see how that would pad automaker profits and be good for dealers, too.
GARCIA-NAVARRO: So this seems not only, like, elitist, helping the richest among us, but it also seems like really bad news if you need to replace a vehicle or if you're on a tight budget.
DOMONOSKE: Yeah. It is a hard time to be looking for a new vehicle right now, especially if you want something in particular or, like you said, if you're on a tight budget. And you might be thinking, you know, I don't buy new cars anyway. But if you're on a tight budget, you're probably looking at the used car market. And when new car prices go up, it also pushes used car prices up. So this will be a major challenge for vehicle affordability just across the board.
GARCIA-NAVARRO: I felt like the dumbest person in the world when I bought a car right before the pandemic hit, and now, not so much. So what happens next?
DOMONOSKE: Yeah. I mean, it's a good question. Because automakers are actually making so much money at lower production levels, they're under pressure from their investors, who are saying, maybe you were making too many cars before. Maybe you should keep doing this. And they're promising to keep inventory levels lower and push prices higher well after this semiconductor shortage is over.
There is a question, though, if they'll actually do that. It's very tempting, when you're a car company, to cut your prices and try to steal some market share from your competitors. That's what normally happens. So we'll see if they do keep levels low moving forward. But regardless, this chip shortage isn't going away quickly, so a shortage of vehicles is probably going to be sticking around for months, if not longer, which means, Lulu, I think you timed your vehicle purchase pretty well.
GARCIA-NAVARRO: It's about the only thing I've done right. NPR's Camila Domonoske, thank you so much.
DOMONOSKE: Thank you. Transcript provided by NPR, Copyright NPR.