COVID Related Microchip Shortages and the Lemon Law: Who’s Responsible?

The worldwide microchip shortage that caused very limited new car inventories and a massive increase in car prices also has ramifications after you purchase a new vehicle.

Imagine buying a new car that turns out to be a “Lemon.” After a breakdown, you take it in to the shop for warranty repairs and are told you’ll have to wait weeks or even months to get your car back because of the worldwide microchip shortage.

You call the car company to plead for help and they say that nothing can be done. The component that’s defective on your car needs to be replaced, but it can’t be because there are no microchips available to produce the replacement component.

It looks like you bought a “Lemon” that can’t be repaired because of COVID. But if your car truly can’t be repaired, then surely the Lemon Law steps in to get you a Buyback or a New Vehicle…shouldn’t it?

Not so fast the car company says. COVID is an exception to the Lemon Law because it is equivalent to a natural disaster that should prevent the Lemon Law from covering your vehicle.

Does COVID really prevent Lemon Law help?

Some car manufacturers we deal with on behalf of consumers actually argue that about Lemon Law matters in an attempt to avoid responsibility. We respectfully disagree.

Before delving further into whether the automotive industry can escape from its Lemon Law obligations, here’s a quick rundown of what the Lemon Law actually is. All 50 States in the U.S. have Lemon Laws to aid consumers of new vehicles that turn out to be defective “Lemons”. Although the standards vary somewhat State to State, the heart of all Lemon Laws is that if a substantial vehicle problem takes too many times or too long to repair under warranty within a certain time and mileage limit after the vehicle is purchased, then the consumer is entitled to get his or her money back or a new vehicle.

There is also a Federal Lemon Law called the Magnuson-Moss Warranty Act that provides compensation to consumers of manufacturer warranted products like cars that are not repaired under warranty within a reasonable opportunity.

Most of these laws also allow consumers to recover attorneys’ fees for successfully resolved cases. This was done so consumers can get the help of an attorney to make sure the Lemon Law is properly complied with by the vehicle’s manufacturer.

Lemon Laws don’t cover everything that could possibly go wrong with a vehicle for any reason. They have exclusions for circumstances such as the age of a vehicle and outside causes of problems like abuse, misuse, or unauthorized modification by an owner.

Another set of exclusions in some (not all) Lemon Laws are warranty repairs that suffer delays due to war, invasion, or a natural disaster such as a fire, tornado, or flood.

Certain manufacturer representatives argue that COVID should be considered a natural disaster under the Lemon Laws that have such exclusion and even in ones that don’t! After all, it is a once in a lifetime pandemic that’s caused massive economic disruptions and numerous deaths.

Merriam-Webster defines a natural disaster as, “a sudden and terrible event in nature (such as a hurricane, tornado, or flood) that usually results in serious damage and many deaths.”

COVID may match this definition as far as serious damage and deaths, but it clearly does not meet the definition of being an event in nature such as a hurricane, tornado, or flood.

It’s important to note that Lemon Laws are remedial consumer protection statutes which courts have routinely held should be interpreted in favor of consumers to promote their consumer protection purpose. That means that if there is a gray area as to whether COVID should be considered a “natural disaster,” which there obviously is based on its dictionary definition, the interpretation of whether COVID is or is not a natural disaster should favor the consumer, not the manufacturer.

However, that is not the only reason why the automotive industry should not be allowed to claim COVID is a natural disaster shielding it from any Lemon Law responsibility. What’s also important to consider are the mistaken decisions car companies made that contributed to the chip shortage mess in the first place…

What caused the chip shortage in the automotive industry?

The chip shortage crisis can be traced back to March of 2020 when COVID shutdowns forced automakers to shutter manufacturing plants. See What Happened With the Semiconductor Chip Shortage—and How and When the Auto Industry Will Emerge. The car companies also decided to temporarily halt chip orders from suppliers who are mostly in Taiwan and China assuming (incorrectly) that production would be stalled for a long period of time. Id.

During the COVID caused lockdowns, demand for TVs, videogame systems, cell phones, computers, and other consumer products increased dramatically. Chip manufacturers supplied more microchips to the electronics industry instead of the automotive industry to meet this demand. Id.

When auto industry vehicle production started back up faster than anticipated in the summer of 2020, carmakers found the microchips needed were no longer available because they were already committed to the consumer electronics industry. Id.

Making matters worse, cars use a lot of older, lower-tech microchips that cost only a few dollars each and have lower profit margins. Chipmakers have little incentive to increase production of these chips, especially because they may get phased out over time. Id.

So why would a microchip shortage cause delays in car repairs, we’re talking about cars, not computers or phones aren’t we?

The reason that the microchip shortage has caused havoc with car repairs is that modern day vehicles rely on such microchips for everything from door locks and infotainment to brakes and advanced driver assist systems. Id. Most diagnostic modules on a vehicle have microchips as well. According to Jami L. LaReau of The Detroit Free Press and USA Today, one car part could use 500 to 1,500 chips depending on the complexity of the part. See Everything You Need to Know About the Chip Shortage that's Plaguing Automakers.

As cited by Motor Trend, Volkswagen of America CEO Scott Keogh admitted at a Reuters Automotive Summit that, "historically, we've made decisions as if chips were nearly infinite so each and every module required a chip, every window lift, every modulator." Because of that, any defective component on a vehicle that has microchips can have egregiously lengthy repair delays when it must be replaced.

You might be thinking, “COVID is a once in a lifetime pandemic, why should car companies be penalized under the Lemon Law for warranty repair delays caused by the chip shortage?” Well, the fact that microchips are so crucial for today’s vehicles requires having a large back up supply of them. Instead, most car companies were only ordering barely more than the minimum number of chips required to produce vehicles as they’re manufactured, while basically ignoring the need to order extra chips to cover potential future repair issues or to mitigate any supply disruptions.

The chip shortage crisis was not inevitable. For example, Toyota had the wherewithal to have an additional supply of microchips due to lessons learned from past supply disruptions caused by natural disasters in Japan. See What Happened With the Semiconductor Chip Shortage... Other automakers should have done the exact same thing.

The automotive industry, not consumers, should suffer the consequences of making the wrong call

According to Alisa Pridle of Motor Trend, some researchers project the global supply of microchips for cars won't catch up with demand until 2025. Id.

So we’re not only talking about a few more months of chip shortage caused repair delays. These delays will last for several years!

There was clearly both a mistaken assumption about the effect of COVID on vehicle sales and a lack of foresight by manufacturers to stock microchips which caused this shortage. Is it fair for consumers of defective “Lemon” vehicles not to have Lemon Law coverage until 2025 because of that? Would you feel it was fair if your vehicle was the one that couldn’t be timely repaired until 2025?

At the end of the day, the issue is whether an innocent consumer or vehicle manufacturer should bear the burden of manufacturers’ decisions to cancel or delay microchip orders and to not have adequate stockpiles of chips to complete repairs.

The burden on the budget of the average consumer to pay for a defective vehicle that can’t be used is obviously much greater than the burden on manufacturers to reacquire a “Lemon.”

Buying back or replacing a Lemon vehicle that can’t be timely repaired because of the microchip shortage is the right thing to do especially because it’s not the individual consumer’s fault that auto manufacturers decided to cancel or delay their chip orders.

The automotive industry had a legitimate reason for what it did with cancelling and delaying microchip orders due to COVID, but that incorrect choice was still the manufacturers’, not the consumer’s, and manufacturers should bear the financial consequence of that decision (and the decision not to have additional microchips stockpiled) being incorrect. Part of that consequence is accepting responsibility for Lemon vehicles that cannot be repaired within a reasonable opportunity, rather than trying to avoid responsibility with questionable COVID Lemon Law loopholes arguments.

After all, me, you, and all other regular people have to face the consequences of our incorrect choices in life. So should motor vehicle companies.

Shalev Amar is the owner of the consumer protection law firms Amar Law Group and Katz & Amar.

The Firms’ phone number is (866) 904-2627.

The Firms’ websites are:

arizonalemonlawadvocates.com

washingtonlemonlawadvocates.com

californialemonlawadvocate.com

oregonlemonlawadvocates.com

utahlemonlawadvocates.com

nevadalemonlaw.info

coloradolemonlawadvocates.com

missourilemonlawadvocates.com

Contact Details

Shalev Amar, Esq.

+1 866-904-2627