Mitigating The Chip Shortage Impact On Your Dealership

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The shortage of semiconductor chips is another disruption to the automotive industry, one that was already impacted by the COVID pandemic, the surge in demand for consumer technology, and the recent winter storm. This is further worsened by the recent fire at the Renesas chip plant in Japan, which may take up to a month for them to recover.

What to Expect at Your Dealership

A typical car can have more than 100 microprocessors, and these supply disruptions could have major implications for your dealership. Several OEMs are expecting major delays in vehicle production. Recently, Stellanis announced it’s pausing production at 5 North American plants because of the global microchip shortage. Here’s what they mean for your dealership and your customers.

  • OEM production changes – Certain OEMs are more impacted by this global shortage than others. Ford, FCA, Toyota, Volkswagen and Subaru had to adjust their production schedules. Honda, Mercedes-Benz and Nissan haven’t modified production but are monitoring the situation. GM and Ford have indicated they will partially build vehicles and store them until microchip supplies become available.
  • Smaller inventory – With several OEMs cutting back on production or reprioritizing for high-demand vehicles, there will be a car shortage on some models being temporarily unavailable. Parts and accessories with microchips may also be difficult to get as supply tightens. This means less inventory and options for your customers to choose from.
  • Longer backlog of potential sales – Some customers are determined to get the exact vehicle type, model and/or color that they have in mind. This can mean a longer sales cycle as they wait for the car they want.

Ways to Minimize Impact to Your Dealership

While the microchip shortage and the resulting inventory impact are out of your control, there are 6 simple things you can do right now to reduce its impact on your business.

  • Provide context for customers – A typical car buyer may not be keeping up with news of the microchip shortage and its impact on inventory. Keep customers in the loop, help them find alternatives for short-term needs and follow-up with them once inventory becomes available.
  • Promote service value – Take advantage of this time to evaluate your current operations and find ways to maximize revenue from your service department. Promote the value of your dealership service offerings over independent centers, including highly-trained mechanics, efficient record keeping for warranties and recalls, affordable maintenance, etc.
  • Focus on profitable used inventory – With less options for new vehicles, this could mean more demand for used vehicles, creating more volatility for desirable auction inventory. Purchasing more used vehicles from auctions can compromise the service levels for customer vehicles. Developing a refined process or outsourcing reconditioning can mitigate lost revenue when getting auction inventory front-line ready for sale.
  • Improve operational efficiency – An efficient DMS can help you maintain a strong reputation with customers, so they keep coming back for future purchases and services. Take advantage of this time to look at your current system to see if it provides the functions you need to optimize productivity and efficiency in a rapidly-changing market.
  • Optimize inventory pricing – Despite new car shortages, demand is still high. Look for opportunities to adjust your pricing and maximize profit on current inventory depending on your local market’s demands and your OEM’s requirements.
  • Enhance buying experience – Moments like these provide an opportunity to examine the current customer experience. Identify ways to incorporate processes that will improve the buying experience with your dealership, whether they are purchasing a car or going in for an oil change.

The microchip shortage is a reminder that the automotive industry is a dynamic and ever-evolving landscape. That’s why it’s important to be flexible in your operations, so you can pivot quickly as current events, global supplies, public policy and new competitors come into play. By following these suggestions now, you can better position your dealership for future success.

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