Inder Dosanjh, among northern California’s largest automobile dealers, has expressed concern over the continuing microchip shortage and resultant slowdown in car manufacture and sales even as demand soars.
Dosanjh, president and CEO of California Automotive Retailing Group which runs 20 dealerships in the San Francisco Bay Area, in an interview with indica said the cuts in production made by microchip manufacturers in early 2020 following lockdowns in several countries as the Covid-19 pandemic spread and vehicle sales sank were understandable.
“When Covid arrived, (people) thought the world is ending and no one was buying any automobiles,” he said.
Failure to ramp up production later that year as consumers plumped for private transport over public in the wake of the pandemic could also be forgiven, he said, as not many had anticipated the rush. “Sales started picking up after August 2020,” he pointed out.
He, however, questioned the continuing shortage almost two years into the pandemic. “We used to have 100 days’ supply of automobiles (before the pandemic),” Dosanjh said. “Now we have inventory for just three or four days.”
Dublin, a dealership in California, used to carry inventory worth $50 million at one time. “Now we are down to $5-6 million,” he said.
More worrisome, he said, is that the supply chain seems to be broken and despite pressure from manufacturers and even the U.S. government, the shortage may well stretch into next calendar year, given that the chips are sourced from outside the country, mostly from manufacturers in Southeast Asia and China.
Some conspiracy theorists say China is deliberately creating the shortage. “We don’t know or cannot say who is creating a problem,” Dosanjh said, “but it’s over two years now and there is still short supply, that just doesn’t make sense.”
A modern automobile uses over 100 microchips in its construction, he said. From the door to the rear-view mirror, these chips are used in all parts of the vehicle. And the automobile industry is not the only one that needs these semiconductor chips. They are also used in a host of other gadgets, from smartphones to television sets, internet routers, smart refrigerators and even home climate control thermostats.
He said the crisis created by the shortage has only worsened the problems automobile dealerships have been grappling with for five years or more with people increasingly buying vehicles online. The only relief is that the chip shortage has disrupted supply for online sellers too.
Dosanjh, who moved to the U.S. from Punjab in 1976, landed his first job as a car mechanic at Central Valley Automotive in Modesto, California, in 1978. Since then, he has been in this line and has built up his own business. Over the past more than 40 years, he said, he has seen several ups and downs in the business.
Even now, he said, demand for cars is so high that “70 percent of our incoming cars are sold”, but business has shifted in the past two years, he admitted, referring to increasing online sales.
“Hopefully, we are never going back to the inventory level we used to have,” he said. “We are trying to learn what we can from this and there is a lot of stuff that has to happen and we want to keep the good things we have,” he said.
However, Dosanjh wasn’t happy about the dependence on other countries to keep American manufacturing going.
While the Biden administration has been trying to push American companies to manufacture chips in the U.S. once more, Dosanjh said it is not so easy. “It is an expensive ordeal,” he said. “It takes up to three years to get the manufacture going. Plus it costs $50 billion to set up a factory.” Even with the government push, it would take at least a couple more years to get going, he said. This certainly is not a quick fix.
“I think the world is learning you cannot depend on China or on other countries,” he said. While some of the shortage is real, he hopes countries like India, Vietnam and Malaysia step in and pick up the slack.
According to consumerreports.org, ‘manufacturers sold more than 14 million vehicles in the U.S. in 2020 and more than 17 million the year before, creating a need for hundreds of billions of microchips annually’.
According to the website, when automakers shut factories in 2020, to keep workers safe and to confront a steep drop in demand for new cars, they canceled orders for semiconductors. At the same time, demand for computers and other electronic devices rose exponentially because people needed to work and be entertained at home.
But once demand returned, people have been keener to buy new cars than used ones. Use of public transportation has gone down and even ride-hailing apps like Uber are reporting reduced usage. The reason is that people now prefer to use their own cars and don’t want to be in cars that others have used.
Asked about the impact of the pandemic on his company, Dosanjh said, “It was challenging trying to stay ahead of the curve and protect our company. It is one of the largest in California and we don’t have equity partners, so it’s just us, me and my son, and we have 1,200 employees.”
Asked whether he had to lay anyone off, Dosanjh said he did have to let a few people go, but he kept paying most of his team. “We called them back right away (when the markets reopened),” he said. “At that point our number one goal was not about making money but about making sure they were healthy and not starving. We pay about $800,000 as health insurance a month.”
Dosanjh said it is not enough to keep proclaiming to employees that you are like my family. “From time to time you have to show it to them,” he said. “I think our success is based on that.”