Car Prices Can't Catch a Break From Chip Shortage Woes

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Jul. 23 2021, Published 11:58 a.m. ET

By now, it's the same old tune—just at a faster speed. The chip shortage continues to wreak havoc in the automotive industry, and rising car prices mean that consumers are bearing the brunt of it.

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How bad is the problem, and will car prices take a breather anytime soon?

Despite chip shortage shrinking the supply of new and used cars, prices continue to rise.

The U.S. Department of Labor released the latest statistics on consumer prices. In June, the CPI (consumer price index) rose 0.9 percent. That's a 5.4 percent increase in prices YoY or the highest rate since 2008. 

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While cars don't make up the entirety of the CPI, they play a big role. After all, used car prices have increased at least 16.8 percent, while new car prices are up 5.4 percent over the last year. In May, the average American who bought a new car paid $41,263.

The ongoing chip shortage is one of the key reasons why car prices keep rising. We can see the impact just by looking at mostly empty car lots and high price tags for those that are available. The global chip shortage is so prevalent that it even has its own Wikipedia page. 

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Industry leaders and consumers alike are crossing their fingers in hopes that the chip shortage will end sometime in 2022. Until then, car prices will continue to be a burden consumers must bear.

It's not just the chip shortage to blame for soaring car prices

In addition to a general shortage of available vehicles due to semiconductor chip gaps in the supply chain, demand has also increased for vehicles.

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The elevated demand is due in part to the "mass urban exodus" phenomenon we saw during the COVID-19 pandemic. With people moving out of cities at a higher rate, the need for a personal vehicle has also increased. About 3.57 million people left the NYC metropolitan region in 2020. While many of them might have moved to other cities with strong public transportation systems, the reality is that a large chunk went somewhere that makes social distancing a bit easier.

Are there any cars not impacted by the chip shortage?

According to Edmunds, the new car inventory is down 48 percent from last year. That's a major blow to buyers and sellers alike. Pretty much every vehicle in the 21st century has been impacted by the chip shortage. Currently, 12.7 percent of people are paying above the sticker price for a new car.

To give yourself a chance on the dealership lot, you'll want to do a few things:

  • Loosen your requirements. Want a car in a certain color? Consider expanding your palate of possible options.

  • Ask yourself, do you really need an SUV? Sedans are more widely available at the moment due to their decreased popularity. You might be able to find one large enough for your needs.

  • Don't constrict yourself to your county. If you can go out of town, you might want to expand your search area.

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