The widespread semiconductor microchip shortage has been in the news for months. Many people are aware that it has hindered the manufacturing process of many companies. An imbalance of supply and demand alters prices. In this case, prices of new and used cars have skyrocketed, though not proportionally. A new report shows that many consumers are paying higher monthly payments to finance used car purchases than they would for new ones.
The semiconductor microchip shortage continues to raise car prices for car buyers
At the start of the coronavirus (COVID-19) pandemic, many factories were shut down to encourage people to stay home and prevent the spread. At the same time, consumer demand for various goods plummeted, as people were unsure about their financial futures. The auto industry experienced a significant dip in demand, so many carmakers canceled their orders for semiconductor chips until further notice.
Fast forward to later on in the pandemic, and demand for vehicles began to skyrocket. Factories and car dealerships couldn’t keep up with demand, and manufacturers continued to lag because of the temporary shutdown of microchip factories themselves.
The auto industry has been one of the hardest hit by the semiconductor shortage. Modern vehicles have infotainment systems, various safety features, and more that require microchips to work, and some luxury cars require 100 or more to operate thoroughly. Some carmakers have had to slow down or completely halt production on many of their models, though other carmakers have opted instead to leave out some features to meet high demands.
Report shows used car buyers are making higher monthly payments than new car buyers
According to a recent Experian report, many consumers who buy used cars make higher monthly payments than those who buy new cars. Although this wouldn’t make much sense in normal circumstances, the chip shortage has created long waitlists for new cars, and many people can’t or don’t want to wait that long for a new ride.
As a result, there are numerous used vehicles that cost more than brand-new ones because of the supply squeeze, which forces consumers to finance higher dollar amounts and make higher monthly payments. For example, a used Kia Telluride has been regularly selling for approximately $4,000 more than a new model would cost.
The Drive also reports that family-friendly and typically affordable cars aren’t the only ones being impacted. On average, people have been paying about $7,500 more for a used Mercedes-Benz G-Class than a new one. New versions cost about $182,631, but used models went for 4.1% more at $190,078.
When will car manufacturing and prices return to normal?
It’s impossible to say for sure when this microchip madness will return to normal, and carmakers haven’t had many reasons to feel hope lately. Toyota had to cut global production by 40% back in August, according to BBC.
Kelley Blue Book recently reported that a significant microchip maker estimated that the shortage could last well into 2023, so it’s unlikely that we can expect substantial improvements in production, and car prices, until then.
If you are in the market for a new vehicle, and you can’t wait until everything returns to normal, you will have to weigh your options carefully. You can reserve a new car, potentially with fewer features, and wait patiently for months until it’s ready for you to drive, or you can sit at your computer all day and try to snag used cars at higher prices as soon as they are listed. Either way, 2023 seems like it can’t get here fast enough for car buyers.