Why Are New & Used Cars So Scarce These Days?
What is the cause of the used car shortage and when will the car shortage end? We take a look at some of the factors impacting those answers.
December 10, 2021
The economy over the last few years has been downright strange.
From mass layoffs and economic panic in early 2020 to a speedy economic recovery that few saw coming, it’s been difficult to predict what will happen next.
Now, we’re facing another quirk: A massive car shortage.
If you’ve tried to buy a new or used car recently, you may have noticed an astronomical price tag.
What’s going on? And when will the car shortage end?
Why it’s hard to find new and used cars
The used car shortage is caused by the new car shortage. Because there aren’t many new cars on dealership lots, people are turning to the used market to purchase vehicles.
But what’s causing the shortage of new vehicles? There are three factors:
A shortage of microchips
Manufacturing delays due to the pandemic
Strong demand due to the rapid economic recovery
The chip shortage
Chips, also known as semiconductors, are tiny electronic components that power our smartphones, computers and vehicles. A shortage of chips is the primary driver of the global vehicle shortage.
Even before the pandemic, the demand for these chips outpaced the supply.
Manufacturers ordered as many chips as possible to produce everything from iPhones to TVs and Ford F150’s. And chip suppliers just couldn’t keep up.
Then the COVID-19 pandemic hit, which increased demand for chips. To stay busy at home, locked-down citizens around the globe ordered new computers and electronics.
At the same time, several chip manufacturers were forced to suspend operations to slow the spread of COVID-19. Large outbreaks in Asia (the center of global chip manufacturing) resulted in halted production, which worsened the global chip shortage.
Today, manufacturers still haven’t been able to catch up — and demand for these chips is multiplying. Continued COVID-19 lockdowns in some countries have further worsened the manufacturing problem.
Chips & vehicles
You might not think of microchips as an important part of a vehicle, but chips play an essential role in the modern vehicle. Increasingly advanced technology in our vehicles relies on chips, and without them, automakers can’t keep producing the normal amount of new cars.
The chip shortage has hit the automotive industry particularly hard. Globally, analysts expect that the semiconductor shortage will cost the automotive industry over $210 billion in 2021 alone.
When will the car shortage end? It’s hard to say — but the forecasts aren't looking good.
When will the car shortage end?
Analysts expect the chip shortage to improve by 2023, which should help end the car shortage.
However, it’s difficult to predict what this means for car shoppers. Because of the ongoing delays, many cars are pre-ordered and paid for before production.
So while the chip shortage may get better by 2023, it’s unclear whether the car shortage will end.
Why are cars so expensive now?
You may have noticed that car prices are on the rise. This has several underlying causes.
The shortage of cars is the primary driver. Dealers have fewer vehicles to offer, so they’re forced to raise prices to maintain profitability.
Likewise, individuals selling their cars know that they’ll need to pay more for a new vehicle, so they sell their car for more than anticipated. Strong demand from purchasers means that there’s no shortage of buyers lined up — even when the price is high.
How much do cars usually cost, compared to their current price?
In just the first six months of 2021, used car prices surged by 32%. That means that a used car that costs $10,000 in January 2021 would cost $13,200 six months later. Unfortunately, the trend has continued, with substantial increases in used car prices recorded each month.
Is now a good time to sell a car?
If you have a second or third vehicle sitting around, this could be a good time to sell. The demand is strong, and prices are substantially higher than in past years.
However, if you plan to replace the car with a new one, that’s where you’ll run into a problem. You may get more for your used car — but you'll also need to pay substantially more for a new vehicle.
The good news is that dealers are offering generous deals on trade-ins as they seek to improve their inventory of used vehicles.
Buying a vehicle with a car loan
Prices on both new and used vehicles are up substantially — but what does this mean for buyers who plan to take out an auto loan?
Well, it means you’ll be paying more — both in terms of your monthly payment and the total cost of the vehicle over time.
The shortage of vehicles has also led to a reduction in low-interest auto loans available.
Dealerships used to offer low-interest loans (even 0% loans) when customers purchased a new vehicle. But now, with shortages of vehicles, dealers don’t need to offer these promotional deals.
How to avoid high-interest rates on car loans
It’s difficult to find promotional low-interest-rate loans these days, but there are still some ways to get a better deal:
Shop around for the best rate
Consider using a credit union instead of the dealership’s loan options
Talk to your bank to explore all your options
As you explore loans, you may be wondering, “Can I negotiate my car loan interest rate?” During the purchase process, you may be able to, particularly if you’re buying from and getting financing through a dealership. However, with the car shortage, dealerships are less likely to negotiate.
Finally, you may get a better loan if you clean up your credit before applying. The higher your credit score, the better chance you have at a lower interest rate from a lender.
One simple way to improve your credit is to pay off debt. If you have credit card debt, check out Tally†. Tally is a credit card debt repayment tool that helps qualifying users streamline debt payoff.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.