Americans might be ready to get back to normal. When the Centers for Disease Control loosened mask restrictions for vaccinated individuals, the masks seemed to come flying off. And retail establishments, restaurants and car dealerships also might have seen a boost in sales and foot traffic.
In fact, Americans swamped car dealerships during the beginning of 2021. Car sales are booming, and, for dealerships, this might have been the happiest of New Year gifts after the craziness of car shopping during Covid!
Car and Driver reported that across the board, sales were up eight percent compared to the first quarter of 2020. But that’s not all. Car and Driver also noted that several manufacturers—including Kia, Toyota, Nissan and among others—reported double digit surges in sales.
These sales figures only accounted for new car sales, though. Thanks to the microchip shortage, used car sales also are getting a nice boost. Per the National Automobile Dealers Association (NADA), this boost to the used car sales is anticipated to continue through summer.
The Downside to the Upside
While buyers are heading to car dealerships to purchase a new car, there might be a downside to the increased sale figures. During Covid, many automobile manufacturers canceled orders for microchips, perhaps believing that they would not need as many microchips with decreased pandemic production and sales.
Other industries—like technology—took on the supply of microchips that the automotive industry didn’t want. What happened next was a bit of a perfect storm thanks to Covid. Chip factories also shut down during Covid, which affected production and the supply. The automotive industry needed more chips that it didn’t have, the makers of the automotive chips can’t produce more chips fast enough and now there is a shortage of microchips that has caused decreased production across the industry.
Add to all this the fact that more personal computers were in demand (at home learning and work), which, per USA Today, the manufacturers didn’t expect…and, yes, the chip issue is pure chaos. There also are numerous other issues that add to the problem too. Suffice it to say, there is a shortage…and now there are a lot of chip crunches ahead.
Those increased new car sales may flip to decreased sales if the shortage continues. Why? Because consumers can’t buy what doesn’t exist. Multiple manufacturers had to cease production and some vehicle models were left without chips.
According to an article by NADA:
“Inventory at the end of the first quarter of 2021 was 12.8% lower than at the beginning of the year with fewer choices on dealer lots. At the end of the first quarter of 2021, industrywide supply fell to 39 days from 48 days at the beginning of the quarter. If sales remain strong in April without a significant boost of inventory, a decline in sales by late in the second quarter is expected due to low inventory levels.”
Used Cars Might Just Be Prized
If the drop in sales happens as the new car industry comes to pass, what of the used car market? The demand for used cars is already getting a bump thanks to the chip shortage, so this might continue. Used car prices also are increasing, and consumers could flock to the used car side of the lot to find the car they can’t buy in a newer model.
But there’s also another bad flipside to the used car side of the industry. As iSeeCars noted, people won’t be trading in their old cars if they can’t buy a new car. The result is a higher price for a used car. When supply is crunched and demand is high, the price is going to reflect the imbalance.
Now the industry may seem to deal with low supply across the lot—both new and used. The consumer that is on the hunt for a new or used car may be faced with a higher price tag…and maybe sticker shock. An analysis from iSeeCars revealed that in April 2021 used car prices increased by nearly 17 percent ($3,926); this analysis was taken from over 1.2 million vehicles in comparison to the same time last year.
iSeeCars also gave consumers a few tips on the cars to avoid and noted that used pickup trucks and sports cars showed the highest price boost, which means that consumers may be best in avoiding these choices.
But iSeeCars revealed that while these were the cars to avoid buying, they would be great for resale! Apparently, this is a great time to get the most bang for the buck for consumers who are looking to trade in or sell these cars.
What are the best used cars to purchase according to iSeeCars? Opt for small SUVs, minivans and hatchbacks.
How Long is the Shortage Going to Last?
If only microchip producers could peer into a crystal ball and predict when supply and demand will level out. Tech companies in the U.S. are supporting the CHIPS for America Act (which would provide for $50 billion in chip subsidies), and the Taiwan Semiconductor Manufacturing Company is working to try to catch up to the demand.
So when will supply and demand catch up? Gelsinger hinted that it could be a few years.
“I think we have a couple of years until we catch up to this surging demand across every aspect of the business,” Gelsinger told Lesley Stahl in an interview.
Heading to a Dealership? Do Your Research
Consumers may be holding onto their current cars and waiting for the microchip crunch to end. However, some consumers have no choice but to buy a new vehicle. Maybe their car just died or they need an extra automobile for another driver in the family.
Sometimes holding off on buying a car just isn’t possible. Individuals who are on the hunt for a new or used vehicle might want to do some research online before going to the dealership. Be aware of the vehicles that are high dollar on the used market, but consumers also need to understand that some models also might have been impacted harder by the shortage.
Car and Driver offers a list of the vehicles that were affected the most by the microchip shortage. The Ford F-Series was the most affected model — more than 109,000 were impacted. Other models include the Chevrolet Equinox, Ford Explorer, Jeep Compass, Ford Edge, Jeep Cherokee and several others.
Shoppers looking for these particular vehicle models might face some issues with availability, or maybe their local dealership will still have a few models in stock. Preparing, though, might be the best idea. Consumers might want to check out their local dealership’s website to view inventory and pricing.
Not sure what car is the ideal? Start from scratch using online resources that can help consumers decide on the perfect car…or at least get a better idea as to what vehicle is the best for their lifestyle. Check out image galleries or online virtual showrooms.
Make a list of favorite models, then begin to look up prices and available inventory. If that vehicle is nowhere in stock, it might be time to move on to a different model or explore used vehicles.
However, some buyers don’t want to purchase a used vehicle. In this case, have a list of vehicle options and be sure to go over budget constraints. Dealerships also may offer promotions or incentives. If you have a trade-in, that car may be worth more…and help lower the price of the new car.
Be Willing to Compromise
Making a list of different vehicle choices can help consumers who are on the hunt for a new car. However, at least one dealership noted that consumers might need to be flexible with just the little details…like car colors.
This might not be the time to really get particular about choosing a bright blue car over a champagne hue of the same model. Given the crunch of some production numbers and depending on the availability at a local dealership, the new car shopping motto might be: “You get what you get and you won’t throw a fit!”
If that car has all the desired features and it’s the ideal model, then color might not—or maybe should NOT—be a deal breaker. When the chips are down, when production is down, choices might be down, too. Consumers might just be thrilled to find exactly what they want at the price they want.
Sales figures for car sales saw a boost in the first quarter, however, will sales continue to soar throughout the summer? Consumers might be holding onto their cars, so used car prices might be higher…with lower supply. And the supply of new cars could be crunched by the microchip shortage.
This doesn’t mean, though, that consumers won’t be able to find cars. Instead, those in need of a new vehicle (or used) might need to make a few concessions. They may have to sacrifice color or other details or they may have to opt for a different model. Only time will tell, though, how the sales numbers in later quarters will add up now that the chips have fallen.
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