The Implications of Supply Chains on the Automotive Industry

Global supply chains have been under pressure since 2020 because of the COVID-19 pandemic. While many sectors of the economy have recovered from the sudden stoppage, the automotive industry continues to see the effects. As a result, new vehicles and specific car parts are not readily available as they used to be, which can present issues for drivers and insurers. Governments of major economies, such as the US and China, expect the crisis to extend into 2023.

Why is the manufacturing of new cars and car parts so delayed?

According to Robyn Anderson, an attorney in the insurance and recovery practice of US law firm Lathrop GPM, “even as supply and demand have gradually resynced over time, there are still kinks to be ironed out in distribution. Major ports are still occasionally being shut down due to outbreaks, labor shortages persist, and operational costs are skyrocketing, all of which can add pressure and delay to a strained, global system” (Insurance Business Magazine). One factor causing delays is a global shortage of semiconductor chips.

A semiconductor chip, also known as a microchip, plays an important role. Modern-day vehicles rely heavily on chips to drive their complex operating, navigation and entertainment systems. Making semiconductor chips is a tedious and time-consuming process. It takes an average of 12 weeks to produce a typical chip, while more advanced versions might need closer to 20 weeks. As a result of the semiconductor chip shortage, vehicle manufacturers cannot release new vehicles to dealerships quickly enough to keep up with demand.

The auto parts and repair industries are facing challenges, too. The price of materials has spiked, delays in transportation have led to a shortage of parts, and many workplaces are still dealing with workforce shortages. As a result of these challenges, vehicle parts are not coming in as quickly as they used to, they are much more expensive, and dealerships may not always have enough employees to complete prompt repairs.

How could supply chain issues affect me when making a car insurance claim?

If you have to make a car insurance claim, you may be affected in a variety of ways:

  • If your insurer determines your car is a write-off, finding a replacement vehicle will be a challenge, as there are not as many new cars available to drive off the lot. 
  • If you are being reimbursed for the actual cash value of your current vehicle, you may experience sticker shock when shopping for a new car.
  • If your car needs to be repaired, you might discover appointment times are limited and your car could potentially be at the repair shop for a while, depending on when the required parts come in.

If you are covered for transportation replacement under your car insurance policy, you will be covered for the cost of a rental while you are stuck without your vehicle. Reach out to your insurance broker to find out what your coverage includes.

Consumers hoping to purchase new cars will have to be patient while supply chains recover. You may opt to maintain or repair your current vehicles instead of opting for newer models, which may affect your insurance. Speak with you insurance broker to review your coverage.