The current shortage of new and used cars has created a seller's market, generating price increases of over 40% in some locations. One contributing factor to this market is the shortage of semiconductors, which are needed to make the microchip processors that control car's electronics.
Manufacturing of new cars has slowed, and at some plants it has stopped completely. CNBC reported that industry analysts have predicted the shortage may last into 2023. In an attempt to prevent worsening the current situation, automobile manufacturers are lobbying for the required microchips they need to continue manufacturing. These chips are used in many things today, from computers to appliances.
Another large impact is that rental car sales are down 50%. When the Covid pandemic began, car rental companies sold the majority of their fleets since rental demands dropped immensely. Typically, car rental businesses sell their cars after one year, creating a large supply of used cars for sale. Due to the shortage of new cars, rental businesses have been forced to buy used cars to replenish their fleets. And most rental businesses have substantially increased their rates to make up for revenue losses.
It is apparent that buying a car in this market could be an unfortunate financial purchase, especially if you bought a new car. The new car dealers are going to take advantage of this supply and demand situation and make every dollar possible while it lasts. This could last through most of 2021. Currently, prices of new and used cars are still increasing. Used car dealers will also demand inflated prices for the same reasons. Due to used car prices being high at the dealer-only auctions, used car dealers have resorted to buying from private sellers. If you need to buy a car, you should also purchase from a private seller. There are private sellers who do not realize how much their car is worth currently, or they do not feel right about selling their car for an overinflated price.
My advice, if you've been contemplating replacing your car due to age and/or high miles, don’t do it, instead, do everything you reasonably can to make it last until prices come back down. If you are in the market for a new car, be patient because in this market, you will pay substantially more than you should. This market will have repercussions for a long time after supply and demand begin to normalize. Car buyers who buy a new car today will want to trade-in or sell their car in a few years only to find out they have lost thousands of dollars, or owe thousands of dollars more than their loan amount. Between the inflated prices and the typical first-year depreciation, many people will regret not waiting.
If you’re thinking about selling a spare car while prices are high, keep in mind that without it if something happens to your daily driver and it needs to be replaced, any gains you made will be lost when you are forced to buy in this market.
I predict a lot of buyer’s remorse to those who choose to buy now, rather than waiting. Whatever circumstance you are in, may your decisions be the right ones, and with our experience, Insight Auto Group can help you with that.
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