car sales

Why a Shortage of Microchips Is Driving Up New and Used Car Prices

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Steve Douglas has been selling vehicles for nearly 50 years, but he’s never seen his dealership in Hancock, Maryland, as empty as it is these days.

He said he usually has anywhere from 80 to 90 new and used cars for sale but now counts them in the single digits. 

“It’s not a very pretty sight when you’re in my business,” he said, adding, “And the sad part is how long it’s going to be this way.”

Douglas is seeing first-hand the effects of a global microchip shortage that’s causing disruptions in new car production that experts say could stretch into 2022.  

Modern cars rely on these tiny computer chips to power everything from infotainment systems to special safety features and more. But automakers can’t get enough these days to supply all of their new vehicle demands, leaving some to slow or cancel production of certain models. 

“Sometimes they're having to leave unfinished vehicles stored so that when the orders for chips come in, they can put the chips in and send them out for sale,” said Benjamin Preston, who covers the auto industry for Consumer Reports. 

Preston said some automakers are also “de-contenting,” or stripping out some of the non-critical features powered by chips, so they can send more cars out for sale. 

“The auto manufacturers aren't getting what they need and they're having to ... make concessions,” he said. 

The problem began during the pandemic when auto factories briefly shut down production and canceled orders for microchips, experts explain. At the same time, chip manufacturers saw an explosion in demand for chips to supply personal electronics — such as phones, laptops and gaming consoles — as more people worked from home during the health crisis.

When auto production resumed, there weren’t enough chips to go around. Manufacturers are still digging out of the backlog. And, if you ask Douglas, it’s causing chaos in the car buying market. 

He said he’s getting calls from more than 100 miles away soon after he lists a vehicle on his website.

“They're panic buying. They want a vehicle and they want it now,” he said.

The strain on new car production has also impacted and driven up used car sales, Preston and Douglas said. Some consumers who are unable to purchase new vehicles are instead hunting for used cars. At the same time, others are holding onto their existing vehicle, which would otherwise be traded in during a new car purchase. 

Douglas explained he often buys used cars from rental companies, who routinely swap out their fleets for newer models. But as newer cars have become harder to get, rental companies are holding onto their inventory longer. That’s left him with fewer used cars to buy and sell. 

“They typically have 300 to 400 vehicles on their site every day,” Douglas said, referring to a rental car company from which he often buys. “A week or two ago, they were down to 25 … Now they’re down to zero.”

Federal data from the Bureau of Labor Statistics show prices for used cars and trucks rose nearly 30 percent between May 2020 and May 2021, though Preston points out some of that is due to the drop in used car values at the start of the pandemic.

Still, he said it’s a seller’s market, which is good news for used car owners who want to offload their vehicle — provided they don’t need a replacement. 

Both Douglas and Preston said consumers should expect the problem to stretch into 2022, as manufacturers dig out of the backlog.

“The analysts that I’ve been talking to are saying … ‘Buckle up. It’s going to be at least into the next year,’” Preston told News4. “You’re basically having to wait for the semiconductor industry to adjust to this big change in the market, and it's going to take time.”

Reported by Susan Hogan, produced by Katie Leslie, shot and edited by Lance Ing, with animation by Perkins Broussard. Photographer Jeff Piper contributed to this report.

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