Car Chip Shortage
chip shortage has had a profound impact on the ability to buy a car. Supply chain problems have forced automakers to stop or limit the production of new cars, trucks, and SUVs. Together with disruptions due to the coronavirus pandemic, the price you pay and the deal you get could be very different from what you expect.
We’ll cover the causes of the chip shortage, how long it could last, and what it means for new and used car buyers. This page will be updated as new information becomes available, so make this site home base for key information to help you better understand market conditions and, most importantly, how to get the best deal.
Updated February 15th, 2022
Why is there a chip shortage? Auto manufacturers canceled semiconductor orders in the early stages of the coronavirus pandemic. Once the economy started to rapidly improve, getting access to those materials proved exceedingly difficult because they were already allocated to consumer electronics by chip suppliers.
When will the chip shortage end? Analysts predict inventory may not return to pre-pandemic levels until 3 quarter 2023.
Many chip suppliers are located overseas, and it hasn’t been easy to build more semiconductors domestically. While there are efforts by the government to get this to happen, it will take some time.
On January 25th, the U.S. Commerce Department reported that median inventory for chips had fallen to just a 5 days’ supply, compared to 40 days before the pandemic. Major semiconductor companies don’t expect the situation to go away within the next 6 months.
On February 4th, the House of Representatives in the US passed the “America Competes Act of 2022” with $52 billion to subsidize chip manufacture and research and $45 billion to help ease supply chain problems. The bill will need to be approved in the Senate before it can be signed into law.
On February 14th, Toyota announced it would cut March vehicle production by up to 200,000 cars globally due to supply chain issues. This may affect models like the Lexus NX, Toyota C-HR, and more. Disruptions at other automakers were compounded by a Canadian trucker protest.
Some manufacturers have taken the opportunity to make big changes. For example, Ford is limiting the number of vehicle configurations stocked by dealers by up to 80%, which may get more buyers to place an order. Honda is looking to normalize lower inventory levels to reduce overhead and increase profit for its dealers.
What does the chip shortage mean? With the inventory shortage making it harder to find vehicles, new car prices remain high and buyers have less negotiating power than in the past. While there can be ways to avoid a dealer markup, some buyers have resorted to ordering cars in transit or even delaying their purchase.
Dealers may be selling fewer cars, but are also seeing record profits. A shortage of new cars also boosted demand for preowned vehicles. This caused used car prices to rise by over 40%, creating opportunities for some buyers to benefit from high trade-in values. Some brands began limiting lease buyout options as a result.
Without required semiconductors, automakers have been unable to complete the manufacturing of their cars.
Here are some other noteworthy examples of how the chip shortage has impacted cars:
• Toyota Tacomas started coming with only one keyless remote
• Ford Mustang Mach-E orders were delayed
• 2022 Buick Encore dropped its entry-level 1.2L engine
• Ford shipped thousands of F-150s with missing chips
• Ford began offering to remove stop-start on F-150s
• GM paused making Silverado engines with cylinder deactivation
• Toyota stopped advertising lease incentives in some regions
What are car prices like during the chip shortage? Based on data from Kelley Blue Book, new car buyers have been paying over MSRP for over 6 straight months. While the figure does not factor in manufacturer rebate deals, it does indicate that new car buyers should expect to pay MSRP or more until conditions improve.
The average transaction price of a new car in December 2021 was over $47,000. New vehicle prices were already trending higher due to a shift toward SUVs and expensive trucks, but the chip shortage has only made things worse. While there are still cheap cars you can buy in 2022, there are definitely fewer choices.
Paying MSRP could make sense if you aren’t able to wait. After all, real-world car prices are dictated by supply & demand. Although manufacturer incentives are down overall, there can still be opportunities to save whether it’s with great leasing deals or available 0% financing promotions amid the inventory shortage.
In the preowned market, the average used car price in December 2021 exceeded $28,000 for the first time ever based on data from Cox Automotive. Used cars under $10,000 have been the hardest to find. While CPO cars can be a good deal for some buyers, they are generally more expensive than non-certified cars.
What cars are hardest to find during the chip shortage? Import brands are the hardest to find. According to Cox Automotive, Kia and Honda tied late last year with the worst inventory at a 17 days’ supply. The industry average was 33 days. Toyota and Subaru weren’t far behind with a 19 and 20 days’ supply, respectively.
Having said that, brands with higher days’ supply numbers may not always be easier to find. For example, GM has more inventory than Toyota, but trucks like the GMC Sierra are offered in many different configurations. As a result, getting the exact truck you want could require you to wait or place an order with a dealer.
What cars are easiest to find during the chip shortage? Based on days’ supply, Chrysler had the most inventory at 98 days based on data from late last year. However, given the fact that the brand sells just two main models at this point — the Chrysler 300 and Pacifica minivan — these may not be so easy to find.
What will be Future effect on used car: It all means the price of sourcing and buying a used car from other countries are going to rise and locally used car prices will be impacted as a result of this global chip shortage.