It has already been established that the shortage of computer chips has led to the shortage of new cars’ production capabilities, leading to a sudden increase in the prices of the cars. We have the pandemic to blame but that’s not it; we have the planning to blame too. The impact is seen in abundance in Maryland because the new cars for sale, all set to be released, awaiting computer chips and other smaller equipment, are lined up nicely in assembly plants like the General Motors assembly plant and no one could do anything about it.
Lots and lots of pickup trucks, vans, and cars are standing isolated in the plants, and the short supply of computer chips is just the beginning of the shortage that is about to encapsulate the auto industry. The world might have learned how to live with whatever they have during the lockdowns imposed in lieu of the pandemic, but will the world ever be able to learn how to combat the lack of what was previously regarded as a luxury, “cars”. Well, if not, then the world will have to fork out more bucks to get back on four wheels.
Globally, the industry is taking a hit-back from the pandemic-stricken world. There’s a lot of disruption that has happened in the auto-sector, thanks to the lack of computer chips aka microprocessors, without which it’s not possible to get these cars out. They are an irreplaceable part of modern cars or trucks, and the automakers can’t do much without their availability.
As new cars have become unavailable in the markets, the consumers are going towards “used cars”. Why wouldn’t they? When the cars are not available, consumers will look at alternatives, and getting used cars is one of them.
In fact, the prices of used cars have also surged after last April. This April, according to the Consumer Price Index, there was about a 10% increase noted in the prices of used cars. No genius is required to guess why the prices of used cars have increased. We all read it in our economics books; when demand increases, prices increase.
Chip shortage, according to Suresh Acharya, who is one of the professors at the Robert H. Smith School of Business, left most of the auto manufacturers hungry for even the basic components of their cars or trucks.
Every year, only a couple of cars are seen maneuvering with their great transmission. Most cars nowadays have capabilities like artificial intelligence. They can parallel park the vehicle, keep you within the lane, protect your bumper to get harmed in case of a potential collision by avoiding the same and help you keep focused on the road by barring all sorts of distractions. With these cars, you also get some mind-blowing entertainment options, infotainment systems, and internet connectivity. According to the professor, we are nowadays driving “smart devices on wheels”.
New car market and used car market are interconnected
It’s not a surprising fact that the used car market has almost overpowered the new car market, thanks to the lack of new launches in the market. In 2019, according to an estimate, over 40 million used cars were sold and only 17 million new cars were sold. However, the truth is both are interdependent.
Only buyers who trade their old cars for new ones create a repository of old cars in the market. It’s true that the repository is huge and therefore, the supply is in abundance. However, if the newer cars stop making their presence in the market altogether, the stock of old cars will also at one point stop. Old cars are also found in rental car companies selling off the fleet that is worn off a bit for fresh stock.
The new car market cannot be reached, customers reach used car market
While we know that both these markets have buyers from different demographics, it’s worth pondering what happens to the used car market when all customers shift to it. SUVs might still be available as new cars, but the demand for family haulers is usually much higher. The non-availability of cheaper cars often pushes new customers to the used car market.
Buyers would rather get themselves a used Sedan than settle for a new Toyota Highlander. Besides, with the used car market, buyers can thoroughly inquire from the original owners of a particular car about its maintenance, repair requirements, seasonal issues, reliability, dependability, and warranty.
Dealers are nowadays constantly running ads for used cars because the demand is so high. The New York Times notes that these dealers are now calling up the car owners to check if they want to trade their car for some bucks. Dealers also report that they get to witness buyers who are looking for ride-sharing and public transit because of the ongoing pandemic.
If consumers are now looking for something that’s usable and not too flashy, then they have a whole market to turn their heads to. The supply chain, however, is still under its recovery stage, and with the increase in demand, the supply is quite tight. So, the prices are high but not wavering much from their stand.
Jessica Caldwell, the executive director at an automotive research website Edmunds, quoted to an interviewer at Vox, “the used car market relies on inventory from elsewhere…while the new car market took a big hit to sales, that affected the used market supply because you don’t have people trading in their cars as much or ending their auto leases on as regular a basis as before.” According to her, the auto industry with its auto-specific initiatives is experiencing a kind of a V-shaped recovery.
When talking about transaction prices and lowered interest rates, Caldwell said, “The folks who are buying new cars are not financially suffering because we can see that transaction prices are going up.” She came forward to explain something that is similar to the K-shaped recovery. She said, “They’re buying more expensive or larger vehicles, and are moved to do so because the interest rates are low.”
For the year 2020, Caldwell had already predicted that there will be a slight fall in the prices of used cars. She said, as quoted in an article by Vox, “There’s a finite period of time towards the end of the year when the model becomes one year older. So I’d imagine prices would briefly drop.” Nevertheless, the ongoing pandemic might have halted the sale of new cars or the production of these cars. The sellers of used cars are happy and merry. They’re making more than the manufacturers themselves.
The cars are costing fortunes not only in Maryland but in all the states of the United States, and the need of the hour is to have a mindful strategy.