You may have noticed that the dealerships in your area are looking more like empty parking lots these days. Another victim of worldwide supply chain challenges, the auto industry is suffering. Dealers are finding themselves in short supply of new vehicle inventory — and a swiftly tightening supply of used vehicles following. If you are planning on purchasing a car, this phenomenon may have you feeling concerned.
As with any considerable purchase, it’s wise to do your research beforehand. You may have scoped out a dealership or two or taken a look online, only to find that the pickings are slim and the prices are high, even for used vehicles. Auto shoppers everywhere are asking where the shortage came from, how long it will last, and what it means for those planning on purchasing a vehicle.
We did the research and have got the answers you’re looking for about this phenomenon — and some tips for how to navigate it.
What Exactly is Going on With the Auto Industry?
Right now, auto dealers across the globe are experiencing extreme shortages of vehicles due to a disruption in the supply chain. Specifically, the issue stems from a lack of semiconductor chips — an increasingly vital element in modern cars. These chips are responsible for a vast number of features in many vehicles, from power steering and brakes to touch-screen stereo systems and GPS. As cars have become more technologically-advanced, models with all the bells and whistles could require hundreds of these semiconductors. But even base models without the fancy add-ons require them these days, putting all vehicle production at risk.
What Caused the Shortage?
There are a few factors at play.
The COVID-19 pandemic is the main offender affecting manufacturing. When the pandemic began in early 2020, factories all over the world slowed down their production — or shut it down entirely. Auto factories were no exception. Between the need to keep employees safe and the decreased demand for vehicles at the time, orders for semiconductors steeply dropped off in the auto industry. There have also been issues with existing factories, causing them to halt production or close entirely.
What’s more, as worldwide quarantines and lockdowns were being put in place, the demand for electronics such as personal computers, televisions, and other electronic devices skyrocketed. As people were encouraged to stay home whenever possible, they sought out the tools they needed to work, study, and keep themselves entertained. Those highly in-demand tools also need these same chips that vehicles require for even their most basic functions.
Months later, the demand for new cars picked back up and auto factories began running again, the supply of microchips simply wasn’t there.
What Does This Mean for Auto Shoppers?
With a decreased supply of the necessary chips, so comes a decreased supply of new vehicles. As the shortage stretches on, dealer lots become more and more barren. And as the supply decreases and demand continues to remain level or even increase, prices rise as well.
Without the chips, many vehicles cannot be built. In response, manufacturers like Toyota and Cadillac have suspended certain vehicles from their catalog, announced that they will forgo optional features on certain models, and even some companies are stopping production entirely.
Not only does this mean prices will continue to rise, but you may not be able to find a car to buy in the first place. And this doesn’t only mean new cars are scarce. With the shortages of chips — and therefore shortages of new cars — the used-car market has been thrown into disarray as well. Individual shoppers are turning to used cars, but so are dealers, who are desperate to have something on their lots.
How Long Can We Expect this to Last?
At this time, things aren’t looking great for the car shortage. Early projections predicted that the supply chain would begin to catch up by July 2022, but now analysts are expecting the shortage to last until 2023.
For example, Intel, which previously did not provide the auto industry with semiconductor chips, has now expanded manufacturing to make up for the deficit. They also are in the process of opening two new facilities for building the chips.
Still, experts aren’t optimistic about this benefitting car manufacturers any time soon.
I Still Want a New Car. What Can I Do?
You have a couple of options, depending on how dire your situation is.
In the market but not in urgent need? Consider waiting. Prices are much higher than usual, and it doesn’t look like they’ll come down any time soon. If you have a vehicle that’s in good, working order, think about refinancing your existing auto loan if you have one. By refinancing with First Northern Credit Union, you could get a lower rate, lower monthly payment, or even both — savings that could be put towards your next vehicle while you wait for supply to return to normal.
If you want to replace your vehicle because it requires repairs, you may be better off getting it repaired instead. In normal times, often it just makes more sense to sell your car if it’s giving you trouble in favor of a new one. However, even if you can stomach skyrocketing auto prices, there may simply not be a car available – and likely one on order won’t come in earlier than six months. Even if you purchase a new vehicle on order, you will likely need to make those repairs anyway in the interim.
I Need a Car ASAP! Do I Have Any Options?
Of course! While getting your hands on a vehicle is difficult right now, it’s not impossible. If your current car is totaled or you are without a vehicle entirely and need one right away, think about these alternatives to a new car purchase.
For starters, you can purchase a used car rather than a new one. Our free online auto buying service Auto Link can show you cars in your area. You can search for vehicles based on a wide range of options, see their price and how it relates to other similar cars, and even take a virtual test drive from home! You can search and finance all through the First Northern website.
Right now, there are thousands of cars in the Chicagoland area available through Auto Link. You may also consider increasing the distance you’ll travel to purchase a used vehicle outside the city and suburbs as well.
That being said, if you decide to shop used — act fast. With the shortage of new cars, consumers and dealerships alike are snatching them up to make up for their lack of stock. If you find a car for a good price in good condition, don’t let it slip through your fingers.
Still interested in a new car? Make your purchase right away. As we mentioned earlier, the lead time for a car on order can be six months, or maybe more. Also, think about broadening the scope of makes and models you’re searching for. The more you’re willing to accept, the better the odds are you’ll find something.
Experts also recommend forgoing the normal haggling on the price you’d do on a new car with a dealer. With the shortage, if you aren’t willing to pay their asking price, dealers know that there are dozens of other shoppers who might.
You can offset the high cost of a vehicle with a First Northern Auto Loan and secure a low rate or monthly payment. A Driving Sense loan may also be the best option if you decide to make a purchase, whether it’s a new or used vehicle. With a short term and lower monthly payments than a traditional auto loan, this loan is comparable to a lease — except you own the car. It’s also a great option if you plan to replace your car at the end of your lease.
As the shortage continues, understand that prices will climb and supply of both new and used cars will dwindle. With that in mind, now is the time to evaluate your need and make a decision with this new information.
Sources: Consumer Reports, News Nation Now, ZD Net, USA Today