When you think of car parts, your mind may go first to pistons, spark plugs, or various hoses or belts. But in a modern vehicle, computer chips may be the most crucial part. And unfortunately, we’ve been dealing with a major global chip shortage in the past year or so. So let’s take a closer look at what’s behind this serious issue and what it means for you and your current and future rides.
What Does a Chip Shortage Mean for Vehicles?
While old-school cars may be primarily straightforward mechanical devices, modern vehicles rely heavily on computers and other technology. Computers control engine operation, climate control systems, entertainment systems, and more. Quite simply, cars can’t run without them, and inside every computer is one or more chips that form its brains. The result of a chip shortage should therefore be obvious—an inability to produce new cars at their specific pace.
Why Is There a Chip Shortage?
Much of the current chip shortage can trace its roots to the massive disruptions caused by COVID-19 in 2020 and 2021. First, COVID-related shutdowns and supply chain issues wrought havoc on manufacturers of all types. That’s especially for chip makers, which are predominately in Asia. At the same time, technology demand spiked as more people needed additional equipment to work from home. In the meantime, the demand for chips for just about everything continues to grow. Altogether, it’s easy to see how a chip shortage could develop, with demand far outstripping an already limited supply.
How Long Will a Microchip Shortage Last?
Unfortunately, this could go on for a while until things are completely back to normal. Like many industries, semiconductor manufacturers have faced a complicated and unprecedented job getting back to normal following the pandemic. However, Wall Street firm JP Morgan expects the shortage to ease through the second half of this year. The market will eventually catch up sometime in 2023. There could be acceleration if major economies enter a recession this year, lowering demand for chip-intensive devices.
Silver Lining: Why the Chip Shortage May Make a Used Vehicle More Valuable
The chip shortage isn’t all bad news—especially if you’ve got an older car you’re looking to sell. With new vehicles in short supply, more folks are opting for used ones instead. This increased appetite for used cars means dealers can’t get enough. As a result, they’re paying prices sometimes far higher than they would have a few years ago. You may be surprised what that older vehicle sitting in the driveway is worth these days!
It’s more than just the dealers as well, used prices for private sales have increased in general as well. Looking on Facebook marketplace or craigslist will not net you the deal it once did, but you can sell for more as well. Used car prices are up 12 to 25% over the same time pre-shortage. However, with fuel prices up less fuel-efficient vehicles like trucks may not see as much of a price hike. While fuel efficient and Hybrid vehicles are selling at record prices. Ultimately the economics of it all will eventually balance out, but right now prices are all over.
➔ Curious what your used RV is worth? Find out How to Determine Used Camper Values.
What Vehicles Are Affected by Chip Shortages?
Unfortunately, the effects of the chip shortage are being felt far and wide throughout the auto industry. Car makers that have seen issues range from domestic manufacturers like Chevy, Ford, Cadillac, and Lincoln to foreign companies like Audi, Volkswagen, and Mercedes Benz. Even if a particular car is available, the lack of chips may mean some features are missing.
How Long Will the Car Shortage Last?
Like the chip shortage itself, it’s hard to predict precisely when complex supply issues (mixed with unusual demand) will work themselves out. However, it’s likely that the shortage won’t be fully resolved until some time after the chip shortage is no longer an issue. Manufacturers will need this additional time to catch up and get back to “normal” production schedules. Based on the estimates for the chip industry, this will likely not be until mid-2023 at the earliest.
What Should You Know About Buying a Car During the Chip Shortage?
Ideally, you would be able to wait another six months or a year for new car shopping. But if it’s necessary, the most important thing is to be prepared and understand the market. You’ll likely find fewer options, perhaps with fewer features as well. Flexibility is key here! You should also be ready to pay a premium to secure your new ride. You may even want to opt for a lease instead to wait out the chip shortage issues.
Will New Cars Be Cheaper After the Shortage Ends?
It’s hard to predict where car prices may go, especially with inflation affecting economies worldwide. By the time the shortage is fully resolved, new issues may have cropped up already. Still, more vehicles on the market should help to at least prevent any significant future price hikes, assuming demand for cars and trucks stays relatively the same. You’ll likely see the prices of used vehicles drop more significantly, with buyers who would prefer new models now able to get them.
➔ Trying to decide on a new truck? Check out our comparison: Ram Versus Ford Versus Chevy: The Best Truck Debate.
Should I Sell My Used Vehicle During the Chip Shortage?
There’s no doubt this is a time when you can get an excellent price for your used car or truck. We haven’t seen this kind of demand ever, and if a car and chip shortage continues, values might remain high or even increase!
However, it’s crucial to keep in mind any car you buy to replace that vehicle will also likely be more expensive. This could eat up most or all of the gains in price from the shortage. This means the people who can truly cash in on the chip shortage are those with a car to sell who won’t need to immediately purchase another.
Enjoy the Seller’s Market During a Chip Shortage
Everyone has heard the old truism about a new car losing a significant portion of its value as soon as it drives off the lot. It’s one of the many things about car buying that can seem to put all the power in the dealer’s hands. These days, the shoe is on the other foot, and you have a great deal of power as the owner of a valuable asset. Use this information to take advantage of this seller’s market, and you may find yourself behind the wheel of a new ride with your profits!
Have you sold a used car during the chip shortage? Did it sell for more than you expected? Share your experience in the comments below.
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