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Chip Shortage Gives Opportunity To Used Car Market

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Supply chain problems due to the epidemic have prevented the automotive industry from providing enough products to the market, consumers had to turn to the used car market

Due to the 2020 pandemic, people’s health and safety have been affected. The global economy and supply chain have also been severely impacted—one of the areas most affected by the volatility in the automotive industry. Due to the uniqueness of automotive products, the assembly of cars is very complex, requiring many components, and every single part is necessary.

As a result of globalization, various parts for the automotive industry have been distributed throughout the world in order to maximize efficiency and minimize costs. People enjoyed a relatively inexpensive and abundant supply of cars until the epidemic occurred.

The emergence of COVID-19 has led to an oversupply of semiconductors. Demand for products such as networking equipment increased significantly as people were locked in their homes and working remotely. The pandemic led to the closure of chip factories and production facilities across the globe. Today, China, one of the world’s largest exporters of microchips, is still unable to run many factories efficiently due to material shortages. The pandemic has also put the global logistics industry at a standstill, preventing suppliers from promptly getting their products to manufacturers.

In addition to COVID-19, many other factors contribute to the lack of production of microchips. For example; the U.S.-China trade war led to sanctions against Chinese chip makers; lousy weather led to the closure of two factories owned by Samsung and N.X.P. Semiconductors in Austin, Texas, and T.S.M.C., the world’s largest semiconductor manufacturer; and the Russian-Ukrainian war led to the shutdown of production of raw materials essential to manufacturing.

All the above factors prevented the market from reacting in time. The chip industry is facing shortages, which have directly affected the automotive industry. Many consumers say that the waiting time to order a new car is often as long as at least six months or even a year.

According to Cars.com, which tracks U.S. sales, dealerships’ all-new-car inventory has plummeted 70 percent over the past three years: in April 2019, car dealers had 3.4 million vehicles available for sale; by April of this year, that number had fallen to just over a million. The shortage of new cars due to supply has brought new opportunities to the second-hand car market. The average selling price of a used car hit an all-time high of $28,205 in December 2021, 42% higher than in December 2019, before the pandemic.

Andy McDonald, Underwriting and Product Development Manager at Tradesure insurance, said, “The used car market is absolute. The used car market is booming right now and isn’t showing signs of slowing down.” He adds that if properly maintained, a used car is precisely as practical as a new one.

An Uber driver said he spent six months waiting for a new car, but it was worth it because the used cars he sold were even more expensive than the new ones.

Although used-vehicle prices are currently high, prices and availability are returning to normal in the auto market as the pandemic ends and the economy recovers. J.D. Power forecasts that used-vehicle prices will drop by late 2022 and into 2023.