Why Car Prices are Skyrocketing

Updated: Jul 14, 2021

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Used cars are in high demand but what's higher are the prices, see why and how this happened.

Many have found themselves stuck in a sticky situation, do I buy a new or used vehicle, or do I wait it out and hope for the used car market to crash? The used and new car markets are so high, what do I do? Before we get to that, let's take a quick look at why the prices may have gone up.

Chip Shortage

The first notice on a chip shortage appeared late last year and now in 2021 it's becoming a serious issue. This is due to various factors but mainly because of the affect COVID had on factory shutdowns in 2020.

A new vehicle could use up to 100 chips. Chips are used from transmission to touch screen digital dashboards. The biggest manufacturers that were and are affected are: General Motors; Ford; Stellantis; Toyota; Volkswagen; Honda; Nissan; and Subaru. All of these manufacturers have had to adjust production from the result of the scarcity of these semiconductor microchips. Because of all of this we see an increase in production of high-margin vehicles, like trucks and SUVs, and a cutback on high-inventory vehicles like sedans. Even with prioritizing trucks and SUV's you find manufacturers still struggling to keep up with customer demand. Vehicles like GMC Yukons, GMC Sierras, and even Ford F-150s are seeing an extremely hard time keeping up with demand, and what happens when there's a higher demand than supply? The price goes up.

Even when COVID became counter-able with vaccinations coming out, when factories reopened, the majority of the chips went to consumer electronics like computers and gaming consoles.

How Everything Affects Used Car Pricing

With prices of new cars going up, and demand going up, consumers have only one other option when buying a vehicle: used vehicles. With COVID hitting all of 2020 and continuing into 2021, many people find themselves working at home for the most part. With people working from home, people are holding onto their vehicles for longer. No need to add thousands of commuter miles on their vehicles anymore so they can keep them longer. There has also been a lack of repossessions going to market, "rental companies that typically sell hundreds of thousands of units a month. Right now they're not selling anything because they cannot buy new vehicles." (Wren, Thompson)

When Could We See a Change for the Better?

"“In the fall, or close to Q4,” Yurchenko says, “the chip shortage still being the big question mark, but we do expect stabilization in prices.” While that’s good news in the future, Yurchenko does expect used car prices to keep rising in the summer." (Wren, Thompson)

Beresford, C. (2021, February). Semiconductor Shortage Halting Car Production across North America. Car and Driver.

Wren, W., & Thompson, K. (2021, June 29). Here's What's Going On With Used Car Prices-It's Not Just Chips. Autoweek.