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How the Microchip Shortage Is Affecting the Used Car Industry

Just as a chain is only as strong as its weakest link, so the automobile supply chain is only as strong as its smallest part. The automobile industry is currently reeling from a shortage of semiconductors, the tiny chips that are used for applications like a car’s fuel injection system and cruise control.

The microchip shortage has had a dramatic impact on automotive manufacturing in the U.S. According to the New York Times, a Kansas-based General Motors plant was forced to close indefinitely. The nationwide inventory for new cars has plummeted as a result.

But what about used cars? In this post, we’ll explore three ways that the microchip shortage has destabilized the used car industry and what that could mean for prospective buyers.

The Cost of Used Cars Has Increased

The simple laws of supply and demand are hard at work in the used car industry. The supply of new cars is at an industry low, which is driving the demand for used cars. As a result, the price of used cars has increased dramatically to keep up.

If you’re shopping for a used car, this means that you might find the same deal—or even a better one—by buying a new car. While new car inventories are low, the demand for used cars may mean that you can find a comparable deal by staying open to all possibilities.

Dealers Are Less Likely to Offer Discounts

Because of these increased demands, dealers are less likely to offer discounts on their used car inventory. If you’re in the market for a used car, you may find fewer dealer incentives than in years past. 

Make sure to do your research before you set foot on the lot, as some dealers may take advantage of customers by asking for sticker price or a price above the MSRP 

You may wish to re-calibrate your expectations accordingly and shop based on your budget, rather than on other factors such as color, model, etc. You may also expand your search to include other counties (or even states) to increase your available options.

It’s a Seller’s Market

The good news is that if you’re considering selling a used car, the market has never been better for sellers. This also applies to trade-in values.

According to USA Today, trade-in values are up more than 20% from a year ago, thanks to the increased demand. If you can get by without a car for a while, you might consider trading in your car for cash while the market is hot, then using the money to buy a car when the market restabilizes.

Looking to the Future

Industry experts are divided as to when the market will return to normal. This presents a dilemma for current customers:  Should you wait it out or make your purchase now?

If you need a car today, you may want to make a purchase sooner than later, as the shortage isn’t disappearing in the immediate future. But if you can wait it out, you may find that in a year or less, you’ll find a deal that fits your budget.