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The semiconductor shortage that has capped new vehicle production in the U.S. should push prices higher into 2022, driving the price of both new and used cars out of range for many consumers, industry experts told MNI, though demand remains high.
The second quarter of this year is certain to be a "difficult time" for automakers, said Charlie Chesbrough, senior economist at Cox Automotive, which he says will likely extend into Q3 as the chip shortage drags on, putting downward pressure on already-tight inventory levels.
"There's a general view that this tight inventory situation will last through the course of this year, possibly into next," he said.
Low inventory levels are driving the price of both new and used vehicles higher, with the average cost of a new car up 5% during the first week of April over the same week last year and used vehicle prices up 12% over the same period, Chesbrough said, citing data from Cox.
Year-over-year price increases typically range between 2% and 3%, "maybe even less than that," he said. At the beginning of April, the average cost of a new vehicle stood at USD39,599 and used was USD21,522.
New and used cars account for 6.4% of the total Bureau of Labor Statistics' CPI basket, so there should be some upward pressure on year-on-year inflation readings in the coming months.
Surging prices haven't impacted demand, Chesbrough noted, which has remained elevated through the pandemic and is even helping push prices higher.
New and used vehicle price increases are, in part, "a result of consumer demand," Chesbrough said. "People want these expensive vehicles."
U.S. automakers canceled orders for new semiconductors from Asia last year when plants were forced to close because of Covid lockdowns and the U.S. economy went into recession. But instead of cooling as expected, demand for vehicles remained strong, constricting inventories of new and used vehicles. Global supply chain disruptions and increased production of computers and other electronics for at-home activities have exacerbated the chip shortage.
Under President Biden's USD2 trillion infrastructure plan, USD50 billion would be dedicated to expanding the U.S. semiconductor industry, though that will take some time to put in place and it's unclear whether the auto industry will get priority over other industries.
Some automakers, like Detroit-based General Motors, have temporarily closed entire plants because of the shortage, triggering upward of 10,000 layoffs, Michelle Krebs, an analyst at online vehicle retailer Autotrader, told MNI. Some plants, which typically shut down for a month in the summer for retooling, are opting to retool now, while their ability to manufacture new vehicles is limited, she added.
Others are still churning out new vehicles without chips, she said, and plan to install them later once more supply is available. That should help the new vehicle market keep up with demand in the coming months, but for now, supply is still running 66% below 2020 levels and 46% below 2019 levels, she said.