When Will Car Prices Decline?
Do you know what refrigerators, toilet paper, bicycles, and kayaks have in common? They have been in massive short supply during the coronavirus pandemic.
The pandemic has developed unprecedented changes in supply in demand. Also, production shutdowns sent the price of lumber to an all-time high. Months of quarantining led people to spend more time outdoors, while others took on more DIY projects. In the end, the fear of the unknown resulted in stockpiling and hoarding.
After two years since the pandemic started, the global supply chain has stabilized. However, there is one industry where shortages continue to overflow: semiconductor chip manufacturing.
This year, the newest reports from professionals say the shortage will last until at least the second half of 2022. The question is, why are computer chips putting the brakes on new car production?
The Chip Shortage in the Car Industry
You’ll find a few reasons why the shortage of microchips is hitting carmakers hard:
- The pandemic messed up the supply and demand forecasts
When massive shutdowns and quarantines started in March 2020, car manufacturers expected a drop in new car demand. They lowered sales forecasts and canceled part orders for components such as microchips.
- Modern cars are using more chips than ever before
With every new model, trucks and cars feature larger infotainment systems and high-tech car safety features. Each of those technology-filled features depends on semiconductor chips.
Demand for new cars did drop, but only temporarily. By the time carmakers realized that people still wanted to purchase new cars, chip manufacturers had taken work from other firms to change their canceled orders.
How Does the Chip Shortage Impacting Car Prices?
Over the past year, that shortage of semiconductor chips has rendered to a shortage of new cars on car lots. Most carmakers have shut down production because of a lack of chips. It is even reported that Ford has occupied parking lots across Detroit with virtually done F-150 trucks, awaiting chip installations before they can be delivered to dealers. On top of that, the shortage of inventory means new vehicles aren’t just difficult to find, but they are selling at or above the manufacturer’s recommended retail price. That has left various car shoppers turning to the used car market, where higher prices also abound. Based on Edmunds, the standard transaction price for a used vehicle was $25,410 in the second quarter of 2021. That is up from $20,942 from last year, which is a twenty-one percent increase. Thus, are you in the market for a used or new car? You can expect to pay more than ever.
How long will the shortage last?
No one can easily predict how soon the chip shortage will last. However, experts and analysts agree that it will persist until the second half of 2022. Other car executives are predicting production won’t return to pre-pandemic levels until 2023. Chipmakers have also said that it could take upwards of a year or two for the entire chip production to meet present demand.
The pandemic has developed unprecedented changes in supply in demand. Also, production shutdowns sent the price of lumber to an all-time high. Months of quarantining led people to spend more time outdoors, while others took on more DIY projects. In the end, the fear of the unknown resulted in stockpiling and hoarding.
After two years since the pandemic started, the global supply chain has stabilized. However, there is one industry where shortages continue to overflow: semiconductor chip manufacturing.
This year, the newest reports from professionals say the shortage will last until at least the second half of 2022. The question is, why are computer chips putting the brakes on new car production?
The Chip Shortage in the Car Industry
You’ll find a few reasons why the shortage of microchips is hitting carmakers hard:
- The pandemic messed up the supply and demand forecasts
When massive shutdowns and quarantines started in March 2020, car manufacturers expected a drop in new car demand. They lowered sales forecasts and canceled part orders for components such as microchips.
- Modern cars are using more chips than ever before
With every new model, trucks and cars feature larger infotainment systems and high-tech car safety features. Each of those technology-filled features depends on semiconductor chips.
Demand for new cars did drop, but only temporarily. By the time carmakers realized that people still wanted to purchase new cars, chip manufacturers had taken work from other firms to change their canceled orders.
How Does the Chip Shortage Impacting Car Prices?
Over the past year, that shortage of semiconductor chips has rendered to a shortage of new cars on car lots. Most carmakers have shut down production because of a lack of chips. It is even reported that Ford has occupied parking lots across Detroit with virtually done F-150 trucks, awaiting chip installations before they can be delivered to dealers. On top of that, the shortage of inventory means new vehicles aren’t just difficult to find, but they are selling at or above the manufacturer’s recommended retail price. That has left various car shoppers turning to the used car market, where higher prices also abound. Based on Edmunds, the standard transaction price for a used vehicle was $25,410 in the second quarter of 2021. That is up from $20,942 from last year, which is a twenty-one percent increase. Thus, are you in the market for a used or new car? You can expect to pay more than ever.
How long will the shortage last?
No one can easily predict how soon the chip shortage will last. However, experts and analysts agree that it will persist until the second half of 2022. Other car executives are predicting production won’t return to pre-pandemic levels until 2023. Chipmakers have also said that it could take upwards of a year or two for the entire chip production to meet present demand.