The Ripple Effect of the Chip Shortage

As we think about the chip shortage impact, most see it as the common denominator to the new vehicle inventory shortage, the linchpin to delivering vehicle purchases with a lack of features like heated seats, and the trigger point to the boiling-over-demand for used vehicles. But the tale of the chip shortage issue is much longer and will likely play out in ways most dealers, and their service departments, aren’t thinking about–but they should.

Today’s new vehicles are mobile marvels of technology. They can have over a hundred chips, all needed to power advanced sensors, displays, standard and premium features, and when you get into EVs and AVs it becomes even more so.

On the road today are over 250 million vehicles of differing profiles:older vehicles needing to sustain their life longer than their owner may have intended due to unavailable newer vehicles, inflation or a host of other reasons; and more sophisticated, technology-leading connected vehicles, some that can even drive themselves(sort of). And the one thing they all have in common is they all need servicing.

The service department in a dealership has always been the majority profit center. Until now, it’s been pretty straightforward in terms of warranty work. But the tide is shifting, and it behooves dealership management to pay attention and get repositioned for what’s coming. Now, let’s get back to the chip shortage starting with a quick reality check on where things are currently. Yes, it is recovering in some industries, but unfortunately automotive isn’t one of them. “Anything automotive—or competing with capacity for automotive—is still highly constrained,” says Jeff Caldwell, director of global supply management at MasterWorks Electronics, a manufacturer of printed circuit boards, cables, and other electronics products. And variants of the Covid virus in parts of the world where chip manufacturing is taking place may also spur future lockdowns and stall production further.

So how does this cascade down to the service department, staffing and warranty work?

Customer pay is up.

On many older vehicles, the warranties have expired so there is a strong flow of customer-pay work being done. Also, more consumers are opting for service contracts to keep their vehicles up and running. All of this means service departments are busier than ever performing everything from routine maintenance to complex electrical repairs. But at the same time…

There’s an overwhelming staffing shortage.

Warranty claims are going to continue to rise beyond 25% over the next ~5 years, and because the process of processing warranties is largely outdated –meaning it’s manual and performed by a disappearing breed of specialists –the balance of work drastically outweighs those who can do the work. But it’s going to stabilize, right?

Wrong. The chips are coming!

At some point, new vehicle inventory availability will increase, and vehicle affordability will improve, stimulating additional sales of 2-4 million new vehicles annually. This will have a dual impact: the older vehicles that have driven the surge in customer-pay work will be sold to customers who may not visit your dealership, and they’ll be replaced by new vehicles that are under warranty and don’t have as much need for customer-pay work. So, you’ll be able to catch up finally, no?

Doubtful. Servicing new vehicles is going to be a whole new ball game.

Warranty work will rise under the new vehicle category but keep in mind this will likely be a whole new kind of “work”as we start to understand the maintenance around EVs, AVs and the modern connected car. We can expect recalls, upkeep and a bit of the unknown are all on the horizon. Not to mention additional technical and safety training for service technicians to ensure their skills are up to date and relevant.

The bottom line is this:Dealerships have got to get their Service departments in order now. We know the volume will increase. We also know that Service is the key driver to dealer profitability and further, that warranty is an incredible growth engine for service. Now that you know the problem, what’s the solution?


It is imperative that automation be applied to warranty processing immediately. This will not only enable Service departments to keep from drowning in ROs and paperwork, but they will be able to tread well above water and see out onto the horizon. Technology finally exists to alleviate the burden of an antiquated and error-prone system that has weighed warranty claims down for decades.

WarrCloud is here to help, so give us a shout and learn more about how your Service department can optimize efficiency and profitability starting today.