By Jonathan Shanahan
The global shortage of semiconductor chips is creating a major headache for car manufacturers, with most finding themselves unable to produce the number of units they had planned.
Unable to purchase the new cars they had wanted, frustrated buyers are now turning to the used market, which has sent the value of second-hand cars skyrocketing.
What is causing the shortage?
Semiconductors are tiny chips that manage various functions in electrical equipment (including modern cars). Multiple factors have combined to cause the global shortage, such as increased demand for electronic equipment during the pandemic, hoarding by Chinese companies in anticipation of US sanctions, and fires at major factories.
The shortage is impacting a diverse range of industries, but automobile companies have been hit particularly hard. This is because dampened demand at the start of the pandemic caused many manufacturers to cancel their orders for chips. When the car market recovered more strongly than expected, chip companies already had their hands full with the increased demand from other electronics companies.
The global shortage is driving up used car values.
Unable to get the chips they need, many car manufacturers have had to significantly scale back production. Demand for new cars has now outstripped supply, and buyers are looking for alternatives in the used car market.
On its own, this would be enough to increase used car values. But another factor is driving them even higher. With less people buying new cars, there are less people part-exchanging their old ones. This means that, on top of insufficient numbers of new cars, dealerships also have less used cars to sell. This has created a cycle of increasing demand and diminishing supply. The result is used car values shooting up, with no end in sight.
Outlook for the future.
Experts estimate that the semiconductor shortage is likely to last for at least the next year few years. Manufacturers will likely find ways around this. But until they do, used car values will remain artificially inflated. This means that if you are thinking about selling your car, now is the perfect time.