Anyone who has tried to purchase a new or used car within the past couple of years has noticed significantly higher prices for both options. This car buying phenomenon has not yet resolved itself. In fact, in recent months, the average prices for both used and new cars have reached new all-time highs. Read on to learn more about what has caused such elevated car prices, the average costs of used and new vehicles, and when these high prices could end.
COVID-19’s impact on chip shortages and car sales
Back in March 2020, when the coronavirus (COVID-19) pandemic began picking up steam, many industries were forced to close their facilities until they could be safely run and operate once again. Despite the lower supply of many goods, demand remained relatively high, especially among Americans. One of the most significant shortages to hit manufacturing was semiconductor chips, which are used in numerous electronics.
According to Consumer Reports, cars can require dozens of semiconductor chips to run functions like digital displays, heated seats, and more. When chip supplies became too low to keep up with consumer demands, the manufacturing of many products also slowed down or came to a complete halt. Vehicles were one of the most impacted industries by the chip shortage since they require a high number of chips to fully function.
When car manufacturers had difficulty obtaining enough semiconductor chips, they couldn’t make as many vehicles as they usually would. This drove car prices up substantially, especially since many people relocated out of cities during the pandemic, and they needed cars for their new lifestyles. Many aspects of life have finally begun returning to normal, but used car prices are not one of them.
Used car sales continue to break records
When the prices of new cars went up from the semiconductor shortage, the prices of used vehicles followed suit. Kelly Blue Book reported back in July of 2021 that the average cost of a used car topped $25,000 for the first time. KBB reported once again in late September of this year that average prices for used vehicles broke another new record at $25,829.
Back in September 2021, used car prices had risen by 24% in the past year, 34% since August 2019. On the other hand, new cars now cost an average of $45,000, which translates to an increase of over 12% in the past year, according to Forbes.
As a result of all these factors, it has been a seller’s market for quite some time. Those looking to sell a car may now actually be able to get more for it than they originally paid, even if they have racked up a few thousand more miles since they drove it off the lot.
Nobody knows for sure when these changes will be over
Many experts have weighed in on when the semiconductor chip shortage could end, though nobody can say for sure when supply will once again meet demand more reasonably. According to Consumer Reports, Patrick Gelsinger, the CEO of Intel, predicted that the shortage will last at least until 2023. When speaking to investors last July, he stated that “It will take another one to two years before the industry can catch up with the demand.” Other analysts believe the chip shortage could be resolved sooner rather than later.
CNBC reports that Gokul Hariharan from JP Morgan predicts the shortage will drastically improve by mid-2022. One reason for such optimism is that some tech companies like Apple and Amazon are now attempting to develop some critical functions of semiconductor chips on their own, reducing their reliance on outside chip makers.