Used car prices will stay high for a while thanks to the chip shortage
Those shopping for new and used cars may encounter sticker shock. The global manufacturing chip shortage is ongoing and keeping prices above normal
I have been helping my college-age son look for a used car. We were hoping he could spend $10,000 max on something reliable with fewer than 100,000 miles. In the past, we’ve had no problem finding cars within those parameters and often even cheaper with fewer miles. But not in 2021. The challenge has proven to be way more difficult than any other time we’ve shopped for used cars. COVID-19 is to blame.
When the pandemic shut down the entire world, that included companies that manufacture semiconductors, which house microchip processors. Those chips are the brains behind electronics, including those in our automobiles. They help power everything from infotainment screens to safety features like driver assistance.
Sam Abuelsamid, an analyst at Guidehouse Insights, which tracks the automotive industry, talked with Consumer Reports. He told them every car has at least two dozen microchips and that some luxury vehicles can utilize more than 100.
So, with more people working from home during the pandemic, they often would need additional personal electronics. That meant chip demand became higher and higher and manufacturers had a hard time keeping up.
And then the chip shortage hit carmakers.
The situation caused many auto manufacturers to simply pause production. Nearly four million fewer vehicles will go on the market in 2021, according to global consulting firm AlixPartners.
GM and Mercedes-Benz have both shut down plants for some period of time and Ford has projected it will produce 1.1 million fewer vehicles than planned this year. Car and Driver reports almost every automaker has had to “adjust production schedule in major ways.”
With fewer people able to buy a new vehicle even if they wanted to, those car owners are likely holding onto their older cars. During normal chip manufacturing times, those cars would have gone out into the used car market, but not these days.
Consumer Reports addressed those people looking to buy a new car because of their current car having mechanical problems. The suggestion to those potential car shoppers is to wait.
The hike in used car prices isn’t just in my imagination. In July, edmunds.com reported the average price for a used vehicle jumped to $25,410 in the second quarter of 2021, compared to $20,942 in Q2 of 2020. Jessica Caldwell with Edmunds said, “Tighter inventory and fewer discounts in the new car market are pushing shoppers to seek a reprieve in the used market, and this consumer behavior is what’s also driving used car prices to astronomical levels.”
Kelley Blue Book reported the average list price for a used car in June in the U.S. reached more than $25,000. That was a first.
Remember that I said we were hoping to spend less than $10,000? KBB also notes that last time this year, 18% of used vehicles on dealership lots were listed below $15,000. This year only 1% are in that price range.
No wonder our search is proving difficult. And this problem isn’t going to get better any time soon.
Intel’s chief executive Pat Gelsinger told the BBC the global chip shortage will get worse in the second half of 2021, and that it will be “a year or two” before supplies return to normal.
Jean-Marc Chery, the CEO of chip manufacturer STMicro, told Reuters, “Things will improve in 2022 gradually, but we will return to a normal situation … not before the first half of 2023.”
If you are in need of a used car now, unable to wait until 2023, Kelley Blue Book does have some heartening news. The used cars on the market right now are high quality. “The used car you buy today is likely to last you longer than you’re used to,” according to KBB.
So since my son needs to buy a used car sooner rather than later, we have resigned ourselves to the fact he’ll likely pay more than any of us had hoped. But, I guess we can take solace in knowing that while the car may be overpriced, at least he’s overpaying for quality.