Waiting for a New Car? Blame the "Bullwhip Effect”

Shortages of basic goods still plague the U.S. economy, 2½ years after the pandemic’s onset turned global supply chains upside down. If you’re thinking about buying a new car, you may wait as long as 6 months, depending on the model you order. At the root of most shortages is a concept experts call the "bullwhip effect.” Imagine the physics of cracking a whip. It starts with a small flick of the wrist, but the whip's wave patterns grow exponentially in a chain reaction, leading to the tip, a snap — and a sharp pain for anyone on the receiving end. The same thing can happen in supply chains. New, as well as used, vehicles have been in short supply throughout the pandemic. At times, consumers have been forced to wait as long as a year for the most popular models. In early 2020, when the pandemic put most Americans in lockdown, carmakers began to anticipate a fall in demand, so they significantly scaled back production. This sent a signal to suppliers — especially of computer chips — that they would need to find different buyers for their products. Computer chips aren't one-size-fits-all; they're designed differently depending on their end use. So, chipmakers began making fewer chips intended for use in cars and trucks and more for computers and smart refrigerators. Consequently, when demand for vehicles suddenly returned in early 2021, carmakers were unable to secure enough chips to ramp up production. Car makers like Ford and General Motors have decided to sell incomplete cars — without chips and the special features they power, like touchscreens — to relieve delays. However, shortages remain. You could chalk this up to poor planning, but it's really the bullwhip effect in action. When will these problems end? The answer will likely disappoint you. As best as experts can tell, these disruptions will take many years to recover from. As inflation reduces demand for goods and consumers begin cutting back, the bullwhip will again work its way through the supply chain — and you'll see more shortages as it does.