Shortage of New Cars Results in Fewer Choices and Higher Prices
Last updated June 26, 2021
If you go car shopping now you may be in for an unpleasant surprise. Prices are up and inventory is low. That’s because manufacturers are struggling to meet surging demands for new vehicles, but they’re faced with a pandemic-induced shortage of microprocessors (also called “semi-conductor chips” or “microchips”). These tiny bits of tech run several systems, including engine performance, safety equipment, climate control, navigation, and entertainment.
Until chip production can be increased—not likely until early next year, experts tell Checkbook—it could be exceedingly difficult to find the ride you want at a price you can afford. That’s especially true if you’re considering a popular pickup or SUV.
“It’s to the point where automakers don’t have the production to keep up with how many people want to buy new cars,” said Jessica Caldwell, executive director of insights at Edmunds.com.
As one car dealer in the Seattle area told Checkbook: You may be able to order what you want from the factory, but “there’s no guarantee how long it will take” or if that vehicle will even be built.
Automakers Try to Do More with Less
Most automakers have been impacted by the global microchip shortage, and they’ve found various workarounds: Some limited production of certain models; some parked mostly finished vehicles until all chips can be installed; some eliminated features.
General Motors is building the 2021 Chevrolet Silverado and GMC Sierra pickups without Active Fuel Management (AFM) modules. This will reduce fuel economy about a mile per gallon. Buyers can identify which vehicles have the AFM system removed by looking at the window sticker, the company told Checkbook. GM has reduced the price of those vehicles by $50. The module cannot be added after purchase.
The PRE-SAFE collision preparedness system on some Mercedes-Benz models will not be available until further notice, Daimler told us. PRE-SAFE uses a variety of sensors to detect an impending collision and automatically takes steps to reduce the effects of the impact.
“Anyone who’s buying a new car or truck right now needs to be aware that the chip shortage is not just slowing production, but in some cases forcing manufacturers to drop features that would use semiconductors,” said Paul Eisenstein, publisher and editor-in-chief at TheDetroitBureau.com. “A smart shopper will make sure to ask the dealer if the vehicle that they’re planning to buy [is] missing any features because of a lack of chips.”
New and Used Vehicle Prices Are Way Up
The average estimated sales price for a new vehicle in the U.S. hit an all-time record high in May at $41,263, up $492 (or 1.2 percent) from the prior month and up $2,125 (or 5.4 percent) from May 2020, according to Kelley Blue Book.
If you want a specific make and model, and it’s available, you may have to pay the full sticker price—or above MSRP in some cases. Dealers are simply not motivated to discount popular vehicles.
Faced with sticker shock, some new car buyers are going back to sedans, which tend to have lower prices than SUVs and pickup trucks—or choosing to buy used. That’s sent used car prices skyrocketing: The average transaction price for used vehicles climbed to $25,410 in the second quarter of this year, up from $22,977 in the first quarter, according to the latest data from Edmunds.
One bright note: If you’re trading in a used vehicle, you should get top dollar for it. Trucks have the highest trade-in value of all consumer vehicles right now.
If You Must Buy Now
So how do you deal with this new (hopefully temporary) reality? If you don’t need to replace your car right now, consider waiting until manufacturers catch up with demand. Experts expect the market to settle down a bit by early next year.
If you need to buy now, shop around by asking several dealerships to provide competitive bids on the make and model you want. Even if the car you want is in short supply, the only way to obtain the best price for it is to force dealers to compete with one another. Click here for instructions from Checkbook on how to collect bids.
In some cases, your only choice may be to choose a substitute vehicle or try a competing brand, or consider leasing. That way, you’re not making a long-term commitment, and your monthly payments will be lower.
Jack Gillis, author of The Car Book, has helped consumers make smart car buying decisions for more than 40 years. Here’s his advice:
- Shop carefully. You can find some deals and incentives, especially on less-popular vehicles. Everybody is looking for SUVs, but if a sedan meets your needs, you might get a better deal.
- Widen your search process. If buying from a dealer 70 miles away will save you money, consider it. You can still take your car to a nearby dealer for in-warranty repairs.
- Skip the upgrades. Unfortunately, most manufacturers don’t let you pick and choose your options; you have to buy them in packages. Skipping the fancy packages on a particular model can save you up to 20 percent.
- Skip the extras. Dealer add-ons are budget-busters. Floor mats, cargo containers, and fabric treatments can always be purchased later for much less.
- Decline the extended warranty. Today’s new car warranties are very good. So don’t buy an expensive extended service contract (they’re not really warranties). And they’re huge profit centers for dealers and other companies that sell them—a sign that most people who buy them pay in a lot more than they get back for covered repairs. Plus, Checkbook found many vehicle service contracts have big coverage gaps and often work hard to decline claims. Instead, plunk those service contract dollars in a special savings account to draw on if you need after-warranty repairs.
- Shop around for financing. Interest charges are one of the most expensive aspects of car ownership. Knocking a point off the interest rate by shopping around will save hundreds and lower your monthly payments. Check with your credit union or bank to see what they are offering, so you’ll know if the dealer’s offer is a good one. Warning: Very few people qualify for the heavily advertised zero percent interest rates.
- Beware of dealers using longer loans (72 or 84 months) to reduce your monthly payments. While those smaller payments may sound attractive, you will pay significantly more in overall interest costs, and you’ll probably be “upside-down” for the first year or two. If there’s an accident and the car is totaled, or you have to get rid of it, you will have to make up the difference between your insurance payment (or proceeds from the sale) and the balance on your loan. Take out a loan for four years or less.
- Consider selling your used car yourself. The used car market is hot, and you can usually sell your vehicle for more than the dealer will pay you on a trade-in. Those extra dollars can help make up for the higher prices you’ll see in the new-car showroom.
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Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.