SHOPSMART AUTOS – CUSTOMER INFORMATION – MAY 9, 2021 (PT.1)
Why could you soon pay more for a used car?
Get ready to pay higher prices for used cars. A dearth of semiconductor chip production is cramping new-vehicle production , limiting the availability of certain models in the coming months and threatening to raise used-car prices as buyers hunt for alternatives. The shortages of chips, a result of the pandemic, are rippling through the automotive industry, undercutting production at General Motors, Ford, Honda, Toyota and other companies. The upshot is that the used-car market, in particular, is poised for significant disruption – likely in the form of higher prices. A similar thing happened in 2020 when automakers were forced to temporarily stop the production of most new vehicles due to COVID-19 lockdowns. That drove more buyers into the used market, increasing prices. “The used-car market went haywire,” says Ed Kim, vice president of industry analysis for AutoPacific. “I’m expecting to see more of the same thing year, but for a different reason.” This time: Chips are suddenly hard to come by, and it’s hampering auto assembly operations.
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Why is this happening?
Two reasons: 1.Temporary plant shutdowns in 2020 led chipmakers to send supplies to other customers. “So by the time that automotive production restarted, automakers were basically looking down the barrel of chip shortages because the supply of chips had gone way down,” Kim says. And when vehicle sales outperformed expectations for the year, automakers were left with fewer chips than they needed to meet customer demand.
- Increased vehicle technology in recent years has led to a significant rise in automotive demand for chips, which are already in high demand from other consumer electronics makers.
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