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Chip Shortage Set to Rock Auto Stocks

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Hey everybody, Dave Bartosiak with Trending Stocks at Zacks.com. Ahhh, the good old days. When a manual transmission was called a standard transmission, traction control was administered by the driver’s own feet, and you didn’t even have to have seat belts. Of course, these cars were rolling coffins with Ford (F - Free Report) ovals or Chevy (GM - Free Report) Bowties on them, but at least things were simpler back then. Nowadays, the average car comes with up to 150 microchips. These chips help the car with everything from GPS navigation to parallel parking.

The bad news is there is a global microchip shortage as cars become more advanced and more dependent on electronics. There are several reasons for the shortage including nerds buying up graphics cards for gaming, COVID-related plant shut-downs, and an overall increase in consumer demand for electronics. Side note, I ordered a fridge in August and it’s still not here. If I would have know my K-cup machine in the door was going cause this much of a delay, I would have just fixed my old one and brew coffee like they did in the 20th century. It’s all due to the interruption in the global supply chain.

Things are about to get even worse for the auto industry as dealers are being warned about new cars set for delivery this summer. As in, don’t count on it. That new S-Class with the multicontour seats you South Florida Dentists thought was coming in June? Forget about it. Dealers are going to be left with a book full of orders and no new inventory to keep customers happy. So what’s going to happen?

You’re going to have no new inventory on lots, and huge demand for used cars. That means used car prices are about to go through the roof. I would assume margins as well, but the problem will be finding inventory to sell.

Who are the potential winners and losers here?

Losers, the auto manufacturers themselves. Carmakers don’t get paid on used cars, they just get the big bucks on the new cars. That is going to put pressure on those automakers which have not secured long-term sources of microchips. The two big victims here are likely to be Volkswagen and Mercedes.

The winners will be used car dealers like CarMax (KMX - Free Report) and of course, Chipmakers. With their products in high demand, chipmakers can ramp up production and continue to crank out products. Let’s see if we can find names that are in the good graces of the Zacks Rank.

Every time you share this video, somebody does a burnout leaving a used car dealership. Follow the Author, Subscribe to the YouTube Channel, Twitter @bartosiastics, don’t forget to check out Zacks.com/promo for our latest deal on the Home Study Course, and come back for all the action here with Zacks.com, I’m Dave Bartosiak.

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