Why Are Car Prices So High? The Issue Goes Beyond Chip Shortages

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Supply shortages only seem to be getting worse. Relief from the microchip shortage may not be on the horizon, as a surge in COVID-19 cases from the delta variant in several Asian countries that produce auto-grade chips is delaying a return to normal production. Analysts are now saying that these record-high consumer prices for vehicles — including new, used and rental cars — may not come back down until 2023, AP News reports.

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The supply shortage involves more than just computer chips. AP News went on to reveal that automakers are seeing shortages of wiring harnesses, plastics and glass.

New car prices hit a new record for the fourth consecutive month in July, according to Kelly Blue Book. The average transaction was $42,736 — or 8% higher year-over-year — with the typical sticker price of a new car going above the manufacturer’s suggested retail price.

General Motors and Ford have also announced one- or two-week closures at multiple North American factories, AP News added, and last month, Toyota announced production cuts by at least 40% in Japan and North America for two months. This would mean a reduction of 360,000 vehicles worldwide for September.

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Nissan has also reported a factory closure in Smyrna, Tennessee until September 13, and Honda dealers are also expecting fewer shipments.

In August, new vehicle sales in the U.S. fell nearly 18%, mainly due to these supply shortages. August’s “pace of sales is the lowest since late 2011 during the recovery from the Global Financial Crisis,” Oxford Economics’ Mahir Rasheed wrote in a research note reported by CBS. Also, U.S. dealers had fewer than 1 million new vehicles on their lots in August — 72% lower than two years ago, reported AP News.

Consulting firm Alix Partners calculated that even if auto production immediately went back to its highest levels, it would take more than a year to achieve the normal 60-day supply of vehicles and for prices to go back down.

Know: 4 Critical Industries Affected by the Chip Shortage
Read: Tesla’s Musk Calls Chip Shortage ‘Problematic’ Amid Fierce Chinese EV Competition

“There will be an end to it, but the question is really when,” Ravi Anupindi, a professor at the University of Michigan who studies supply chains, told AP News.

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Last updated: September 7, 2021