Auto supply hot topics: Parts, purchasing problems & pricing explained

A perfect storm is brewing in the auto supply chain, resulting in higher prices, inventory delays, car rental shortages and a spike of car part thefts. And the two issues go hand-in-hand, creating a cycle of disruption that can leave motorists beyond frustrated.

When parts are stolen, supply chain issues make it difficult to replace those parts. Labour shortages make it difficult to get the necessary repairs, and rental car shortages mean that it might be hard to find a temporary set of wheels in the meantime. The cycle continues, as increased vehicle prices and lower availability make vehicle theft more lucrative.

While prices have risen for a variety of reasons, it comes down to two important factors: high demand and limited supplies.

The auto industry was severely impacted by supply chain disruptions during the height of the COVID-19 pandemic, when borders were closed and workplaces were shuttered. But that was only part of the problem. A surge in demand for computers and consumer electronics also led to a shortage of semiconductors—which are used to power a variety of vehicle features—forcing most auto manufacturers to cut production at their plants.

How neon gas and palladium affect vehicle production

While inventory of new vehicles has been strained throughout the pandemic, the Russia-Ukraine conflict has only exacerbated the problem. Neon gas is required for the production of semiconductors, and more than half of the world’s semiconductor-grade neon production takes place in Ukraine—further contributing to the semiconductor shortage. Wiring harnesses for cars are also largely made in Ukraine.

The Russia-Ukraine conflict is also fuelling a black market for car parts. So how does a war lead to a spike in theft of catalytic converters in Canada?

Thieves are specifically targeting catalytic converters for palladium, a rare metal used to filter chemicals from a car’s exhaust system. Russia is the world’s top palladium producer, with about 40 per cent of the world’s supply. And economic sanctions against Russia are making it much more difficult to access this rare metal, creating a lucrative market for thieves.

On many car models, catalytic converters (or “cats”) are easy to access and steal, often taking only a minute or two to remove with the right tool. Thieves can do this completely unnoticed, using a wrench to remove cats that are bolted on, or a saw to remove those that are welded in. Crowded parking lots are big targets—even in broad daylight—and thieves are often part of an organized criminal group.

Production problems fuel black market

This backlog in production has not only decreased supply, but it’s driven up prices of both new and used vehicles. All of these factors contribute to creating a black market for popular car models—though any vehicle is at risk.

Some stolen vehicles are immediately shipped abroad where they’re sold for much more than their original value (with their original vehicle identification number, or VIN, intact), according to the Insurance Bureau of Canada. They could also be sold to unsuspecting buyers (with a false VIN) or dismantled for their parts.

All of these issues further bog down the rental market.

As auto manufacturers become increasingly backlogged with production, car rental agencies aren’t able to expand their fleets to meet demand. Back in 2020, most car rental agencies made the decision to pare down their fleets during lockdowns and border closures (rather than keeping unused vehicles on their lots during those times). When demand started to return, those agencies struggled to find vehicles to bolster their fleets. To throw another wrench in the works, car rental agencies are also potential targets for organized auto theft groups.

Then there’s the issue of rising gas prices, which is fuelling gasoline theft. Thieves don’t just siphon gas (that takes time and could leave behind fingerprints)—they’re actually drilling holes in the tank to get at the gas. That leaves car owners with an expensive repair—at a time when there’s not only a shortage of parts, but a shortage of skilled labour to make those repairs.

Skyrocketing vehicle prices

All of these problems add up. In 2022, Canadian vehicle prices hit record highs, potentially part of a larger economic problem that can weigh heavily on household budgets. Yet Canadians are still on the hunt for their next vehicle.

According to Statistics Canada, 1.6 million new vehicles were registered across the country in 2021, up 6.5% compared to 2020. Why such an increase? Many buyers may have held off on making their purchases because of uncertainty combined with lockdowns and travel restrictions earlier in the pandemic. But comfort levels adjust, and the coming year’s sales levels could likely increase even further due to the high demand from delayed purchasing.

Used vehicles (and those with bells and whistles) are also getting more expensive. With higher price points and a lack of availability of new vehicles, some buyers are turning their attention to the used lots and are willing to spend—even if they would prefer to buy a new car. Further, buyers have a desire for more expensive trucks and SUVs rather than less expensive sedans. Consumers are also interested in costly features, such as automatic braking and lane departure warnings, which increase demand and prices.

All this to say, all routes to purchase are blocked right now. Is there an alternate way?

What can car owners do about it?

The most important thing is to protect yourself (and your current vehicle) so you can weather the storm.

Even if you have insurance, you may have to wait for parts and for repairs, and you may have trouble finding a rental car in the meantime. Considering this perfect storm, how can you protect your vehicle?

Deterring thieves is more important than ever. If a thief really wants your car (or a part), they will likely find a way to get it. But there are ways to deter them, especially if they have limited time and there are easier targets nearby.

Some tips for protecting your vehicle include:

• Use CCTV cameras in your garage, laneway or parking space as part of a smart home surveillance system with alerting capabilities.
• Park in your garage if you have one (and lock your car doors, even inside the garage).
• Keep your keys in a safe place and ensure they aren’t left in the car (since the majority of auto theft involves use of the vehicle’s keys).
• If you have two cars and only one fits in the garage, park the car of lesser value outside the garage.
• If you rely on street parking, try to park in well-lit areas and use a car alarm along with other visible anti-theft deterrents.
• While it’s old-school, anti-theft devices like a steering wheel lock can deter thieves who have limited time or don’t have the right tools with them to remove it.
• You can spray paint your catalytic converter or buy a protection shield—though that’s more of a deterrent than a prevention method.
• Most vehicles these days use a key fob rather than a physical key, but fobs can be hijacked, so consider using a signal blocking bag such as a Faraday pouch.
• Use an on-board diagnostic (OBD) lock to block unauthorized access to the OBD port on your vehicle. (Scratching your head? This is what allows manufacturers and mechanics to access the diagnostic information about your car.)
• Hire a professional to engrave, mark or etch your VIN on visible parts of your car, which serves as a deterrent to thieves (making the car or car parts more difficult to resell).
• Hidden trackers can help locate your car if it’s been stolen. But note that using a tracker on a car part such as a catalytic converter is unlikely to be effective, since heat and the elements will likely destroy it.

Can my insurance broker help?

Your broker is an excellent resource to ensure you’re properly covered for essential auto coverage and any customized options. Keep in mind that it’s not just your private vehicle to consider, but commercial vehicles (if you operate a business), motorcycles, recreational vehicles, motorhomes and utility trailers.

Your broker can also let you know if you’re eligible for discounts—for example, if you have a smart home or security cameras. In addition, if a car part has been stolen and there are supply shortages with the original equipment manufacturer, work with your adjuster or appraiser to see if there’s an option to use an aftermarket or recycled part where appropriate.

As always, talk to your broker if you have any further questions about your auto coverage and how to keep your vehicle and belongings protected.