The U.S. motor vehicle industry suffered severe production disruptions during 2021 and 2022 as semiconductor shortages, triggered by pandemic-era plant closures and shifting demand patterns, brought some assembly lines to a standstill. According to a Federal Reserve FEDS Note by Adrian Hamins-Puertolas and Maria D. Tito, aggregate U.S. light vehicle production had recovered to nearly pre-pandemic levels by the fourth quarter of 2020, but then plunged in early 2021, ultimately falling 20 percent below 2020:Q4 levels by the third quarter. Recovery was slow, with production not returning to pre-crisis levels until early 2023. Against a counterfactual baseline of 2020:Q4 output, the cumulative production shortfall exceeded 2 million vehicles over 2021-2022, with cascading effects on vehicle prices and the used car market.

The shortage was highly heterogeneous across chip types and vehicle equipment. Lead times for microcontroller units, the dominant semiconductor category at 42 percent of the automotive chip market, roughly doubled from 15 weeks to 30 weeks, with sharp increases emerging in the fourth quarter of 2020 and persisting through 2022. Analog, logic, and memory chips all saw elevated lead times to varying degrees, while optoelectronics remained largely unaffected. This heterogeneity meant different vehicle systems faced different constraints, forcing manufacturers into a continual optimization problem over which vehicles and features to prioritize for production.

Facing these constraints, automakers adopted two broad adjustment strategies. First, manufacturers reallocated scarce semiconductors toward higher-priced, higher-margin vehicles. This approach could not significantly affect total output, but it altered the composition of production in ways that protected revenue and preserved margins. The FEDS Note tracks the share of production with manufacturers' suggested retail prices below the 25th percentile of the price distribution, weighted by annual sales. From the second half of 2021 through mid-2023, this share ran consistently below its 2015-2020 trend line, indicating a systematic shift away from lower-priced models. The share moved above trend in the second half of 2023 as chip supplies improved, before declining again more recently.

The second strategy involved the systematic elimination of chip-intensive features from vehicles already in or entering production. Automakers targeted less-vital features, ranging from heated seats to infotainment systems, that could be sacrificed with minimal impact on core functionality. The note tracks the share of vehicles equipped with select infotainment and convenience features across model years. Model-year 2021 vehicles entered production in summer 2020 and became the primary offerings by early 2021, precisely when semiconductor shortages intensified. Equipment adoption rates for several features fell below their more typical trends, with HD radio equipment rates experiencing a particularly sharp decline and not recovering to pre-crisis levels until model year 2025. This pattern aligns with General Motors' decision to eliminate HD radio from its audio systems across multiple 2021 model year trims due to chip shortages. Similar feature deletions proliferated across the industry: GM and Mercedes-Benz limited wireless charging on certain models, Tesla removed USB-C ports from Model 3 and Model Y rear consoles, and Volkswagen dropped keyless entry and power rear gates.

The note's identification strategy exploits cross-vehicle variation in infotainment equipment rates for model-year 2021 vehicles, rates that were largely determined before semiconductor shortages intensified. The analysis compares production trajectories for vehicles with high infotainment exposure against less exposed counterparts. The note reports that high-exposed vehicles were roughly 0.5 percent lower than their less exposed counterparts, and that absent selective deletion, roughly 10 percent of production, between 600,000 and 1,000,000 vehicles, would have been lost. The green shaded areas in the note's figures represent the 95 percent confidence interval. This counterfactual exercise illustrates how feature intensity affected production losses, though the authors acknowledge that assessing severity precisely requires linking chip types to specific equipment and output losses, a challenging task without a precise mapping between chip content and individual features.

The analysis is based on a single Federal Reserve FEDS Note read in full, and its conclusions are bounded by that source. The note does not provide a complete mapping between chip types and individual vehicle features, and the counterfactual exercise focuses on infotainment systems as a tractable starting point. What to watch includes whether feature deletion patterns persist beyond the shortage episode, how the composition of production shifts as chip supplies normalize, and whether the reallocation toward higher-margin vehicles has lasting effects on affordability and the used car market.