Stoneage Ramblings

By John R. Stone

When the pandemic appeared to hit in the spring of 2020 auto manufacturers had to deal with a difficult question. Would the pandemic, and possible lockdowns, kill auto sales? For how long?

Their guess was that there could be a prolonged drop in sales so they should cut back on new vehicle building until they could get more information. So they cancelled parts orders.

One type of part that got cancelled in the process were semi-conductor chips, many of which are made overseas.

At the same time other businesses were anticipating an increase in sales and looking for more chips.

So the cancelled auto manufacturer orders were replaced by other firm’s orders and the chip manufacturers were happy.

It didn’t take more that a few months before auto manufacturers decided their earlier order cancellations were a mistake. They could get most parts back in the delivery schedule, but chips were a major problem. 

And they learned you don’t just build new chip plants.  It takes 2-3 years to get one online and producing.

Meanwhile the lack of new cars meant there were fewer newer used cars. That meant competition for those vehicles. 

While some people were working from home and driving less, others still had to get to work and decided to stay away from public transit and drive themselves.

Those two events, fewer new and fewer newer used cars started creating inflation in 2020. Car dealers had limited inventory of new and used cars and trucks and did not need to discount vehicle prices to sell them.

Meanwhile, again because of the pandemic, people reduced travel and that resulted in a glut of gasoline. While some drove more, even more drove less dramatically reducing demand for gasoline.

Oil companies shut down wells and reduced buying well equipment and parts. Some refineries were scheduled for major maintenance since there was no need for all of them to operate at full production. Many small producers simply closed and many oil workers found other jobs. 

Oil companies decided they were not in a hurry to reopen as demand picked up in 2021. They’d been beating each over the heads for years trying to increase demand for their product by keeping prices low and hurting company profits in the process.

A number of them publicly said they would be slow to reopen wells and increase production choosing instead to use the high prices now available to make their bottom lines look better and reward shareholders.

This is how the private enterprise system works. It’s not perfect but if you look at the variety of goods and services available to the average consumer, it would be hard to imagine a better system.

This is also how inflation gets started. People with money pay more for goods and services than they normally would. High fuel prices get passed through delivery services. When prices get too high people start being more careful. That may be why the price of gas is dropping now.

Companies survive and thrive by creating things people want and providing them at prices people can afford. The government could never do that. Can you imagine for a minute the government trying to decide what clothing and accessories should be available for a Barbie Doll? Or a midrange Chevrolet?

The system, which had operated pretty smoothly for years, had some hiccups during the pandemic, some of which are still with us. The good companies have learned from those hiccups and will do better next time.