September 27, 2021

This is a terrible time to buy a car. Not only are dealer inventories low, prices for new and used vehicles are through the roof. The inflation in the automotive market is borderline astounding.

A big reason is the industry has been hobbled for months by the worldwide shortage of semiconductor chips. It’s prevented manufacturers from producing enough vehicles to meet the demand from Americans eager to spend their pandemic savings and stimulus checks.

As a result, supply is low, demand is high, and vehicles of all sorts are fetching record prices.

The Department of Labor reported the retail price of used cars and trucks jumped a record-breaking 10.5% in June, after rising 7.3% in May and 10% in April. It doesn’t matter if you’re buying a new Cadillac Escalade or a used Toyota Camry, the market is brutal for everybody. This is singular proof of the insanity – some lightly used cars are selling for more than they did when new.

These current market conditions date back to the pandemic. We’re experiencing major supply chain gluts – manufacturers need semiconductors and can’t get them because semiconductor firms found new customers when auto orders were cancelled, so there aren’t enough chips left. That means there aren’t enough vehicles to satisfy the frenzied consumer demand.

Case in point – Ford said it would likely miss half its second quarter production this year. Sales then fell by 27% in June. Those pains exist in many automakers. However, a silver lining is that vehicle sales are more profitable.

Given time, I suppose things will correct themselves. However, costs have risen, and inflation is a sticky thing. Once it’s there, it’s tough to reverse. So, when you’re finally able to get a vehicle, expect to pay more.

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