Car sales have declined after a huge boon earlier this year, but this time it’s not due to shelter in place orders. Last year, these orders caused many factories worldwide to shut down temporarily and slow the spread. In 2021, the lack of car sales has slowed even further due to a microchip semiconductor shortage, resulting in almost barren dealership lots.
With fewer new cars to sell, dealers have no choice but to inflate the prices of their used inventory. According to Kelley Blue Book, even vehicles that might be considered total losses can be sold at a premium right now. Who is selling these totaled and wrecked cars, and should you buy one?
What exactly is the microchip semiconductor shortage?
Nowadays, modern cars contain hundreds of tiny microchips that help them run smoothly. These are the same chips found in smartphones, laptops, and many other electrical devices. These chips are usually in generous supply, but many chip factories shuttered their doors during the height of the pandemic.
When factories opened back up, the car economy was so totaled that automakers limited their chip orders. There were also fewer chips to go around since many consumers were now working from home. Laptop and tablet sales were booming, so their manufacturers had no problem ordering more microchips.
By the time car sales had gradually ramped back up, it was too late for automakers to order more chips. Chip factories are still overwhelmed with their current orders, despite operating at total capacity. According to The Detroit Bureau, it’s unlikely that the backlog will be fully cleared until 2023.
Some consumers can’t wait two years to buy a car, especially those affected by natural disasters. Unfortunately, KBB says the average price of a new car is over $25,000. Although that price has stabilized over the past couple of months, the situation isn’t improving yet, even for totaled vehicles.
Record revenue for totaled and wrecked vehicles
In addition to a chip shortage, other automotive parts suppliers are also fulfilling orders at a slower pace. This has lead to an increased demand for scrap parts from junkyard companies like Copart. In an interview with Forbes, Copart CEO Aaron “Jay” Adair says he has become a billionaire thanks to the current car economy.
The company gets its revenue from insurance companies, dealerships, and rental car companies to dispose of salvageable cars. However, Copart says that most of these cars aren’t totaled and are still in decent condition. Those that aren’t drivable are scrapped for parts.
Copart has 243 junkyards across the U.S., but you can also bid online for salvage cars and parts. The average Copart salvage currently sells for 20.7% more than it did last year. Even with the pandemic, the company still made $2.2 billion in sales in 2020.
Where can you buy a totaled car?
There’s reasonable hope for those with technical repair skills or drivers who know how to part out a car themselves. Insurance companies will often declare a vehicle a total loss because even minor repairs are too expensive. Although the vehicle might be structurally sound, sensors attached to the fender can become irreparably damaged in a minor accident.
Currently, low-mileage salvage cars are thousands of dollars cheaper than repaired cars. You can’t legally drive a salvaged title, but it’s possible to get a rebuilt title after you’ve made extensive repairs. However, some countries allow you to drive a salvage as-is, depending on the damage.
While you can buy replacement cruise control kits, they might be too complicated for novices to install. Additionally, not every state allows drivers to get rebuilt titles. If you’ve got a total loss on your hands, rest assured that the market for car parts is booming.