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VOL. 45 | NO. 22 | Friday, May 28, 2021

Chip shortage: Fewer choices, higher car prices

By Ronald Montoya | Edmunds

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The pandemic appears to be receding in the U.S. and the economy recovering, yet car shoppers heading back to car dealerships are in for a surprise: There are fewer vehicles to choose from and those that are available are more expensive.

New car inventory is 48% of what it was last year, with trucks and SUVs hit the hardest. Plus, the percentage of people paying more than sticker price has risen from 8.1% in April 2020 to 12.7% in April 2021, Edmunds reports. That’s the highest percentage since 2002.

The culprit is a global shortage of semiconductors or microchips, as they’re commonly called, which are critical components for myriad features such as infotainment systems, driver aids and more. The pandemic caused many auto manufacturers to slow production and reduce the order of these chips, which electronics companies subsequently bought up.

Manufacturing new chips is an intricate process, and it will be many months before more are built to meet the demand. In the meantime, automakers have built thousands of new vehicles but can’t ship them to dealers because they’re missing the chips they depend on. This backup has led to fewer vehicles on the dealer lot and fewer discounts.

“At the rate we’re going, it’s going to be a lot tougher for car shoppers to find exactly what they want this summer,” says Ivan Drury, Edmunds’ senior manager of insights.

The chip shortage also has indirectly increased consumer demand for used cars, either as a less expensive alternative or because people simply can’t find the specific new vehicle they’re looking for. And dealerships will not be as willing to discount cars as long as demand exceeds supply across the board.

With this difficult shopping climate in mind, Edmunds’ experts have come up with tips to navigate the current market.

Expect fewer discounts: That killer deal you got a few years ago won’t be the same today. Don’t be surprised if a dealership only discounts the vehicle by a few hundred dollars, holds the line on the sticker price or even sets a price above the manufacturer’s suggested retail price.

Research comparable vehicles in your area to help determine a fair price. We also recommend cross-referencing your prices with a third-party guide such as Edmunds to see what others are paying.

Expand your search: Take a look at the dealerships in the next town or county over. This strategy can increase your chances of getting the car you want or finding a better deal. Tempted to cross state lines for a car purchase? Be sure to research your local sales tax laws and emissions requirements and check with your department of motor vehicles on how to handle the temporary registration.

Give yourself options: Have backup picks in colors and even a range of different models to give yourself the most flexibility. If you’re having trouble locating a certain model, consider its equivalent at another brand.

It might not be one you’re familiar with, so make sure to research it well, but you might end up liking it better

Give sedans another chance: Trucks and SUVs are by far the most popular vehicles today, which means that they will be more expensive and harder to find. Modern sedans offer more space than ever and, in theory, should be easier to find on a dealer lot.

Cross-shop new and used: In today’s market, it’s best not to leave any stone unturned. There might be situations in which a new car might be a better value than a used car or vice versa. Make sure to explore all your new or used car options.

Take advantage of sky-high trade-in values: One bright spot for those with a vehicle to trade in is that it is currently a seller’s market. This can help soften the blow from the higher prices. Make sure to appraise your vehicle at multiple venues to help you get its maximum value.

Lease an easier-to-find vehicle: Are you brand-loyal but can’t seem to find a good car from your automaker of choice? Consider leasing from another brand that might have a better selection.

We’re not asking you to permanently change your preferences, which is why leasing works in this scenario. It gives you an easy out in two to three years when you want to return to your brand.

Wait for the market to cool: Edmunds analysts estimate that the vehicle shortages might last for about six months. If you’re not in an immediate rush to buy a car – perhaps you work from home – you could try again near the end of the year.

Edmunds says

Although shopping for a car has rarely been as challenging as it is right now, there are a number of strategies you can employ to make the best of it.

Ronald Montoya is a senior consumer advice editor at Edmunds. Twitter: @ronald_montoya8

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