The lack of chips around the world has increased the cost of buying a new car; however, it has also impacted the used car industry. Let us understand the chip shortage before diving into the used car industry.

 

During the Covid-19, the demand for electronic products increased significantly.

 

The demand sparked a global chip shortage, affecting everything from the latest models of phones and gaming systems to new appliances and vehicles.

A new car can have up to a hundred of these semiconductor chips, which are needed for components ranging from touch screens to transmissions. But with supply problems, commercial prices for used cars are on the rise.

 

Due to this Covid automotive chip shortage, the world's largest automakers face a severe semiconductor shortage that could jeopardize production as the industry seeks to recover from declining sales.

 

Volkswagen also stated that they need to adapt their production at their plants in China, North America and Europe, which would affect the best-selling VW Golf, as well as Audi, Skoda and other brands.

The outage comes at a crucial time for automakers, which saw sales decline in the first few months of the pandemic.

 

When the coronavirus epidemic forced automakers to temporarily shut down factories last year, major semiconductor rebooted their production to cater to smart phones, laptops and gaming devices. Thus, it is the overall production for new cars has been hit by the pandemic at large.

 

How does it affect used car industry?

CarFax is a used car supplier in the US and has reported a twenty percent and thirty percent increase in rates of cars and truck than last year. But while high values ​​ are good, if you want to use that money to buy a new car, you would still be paying more than you expect.

 

With new car models not available or on hold, local used car dealers are seeing more interest in their cars. However, the second side of the coin is extremely high demand for cars, which has caused the prices of used cars to increase at unprecedented rates.

There were many who wanted to buy cars when the pandemic hit; however, the purchase had to be postponed due to economic restrictions and lockdowns. On top of that, the car rental fleets were sold to cut losses.

 

Along with that, the US government's stimulus checks to its citizens meant that there were sitting on huge amount of money as they could save up a lot during the stay at home spells.

Thus, there was a huge demand to buy cars, both used and new. As business and travel resumed, the rental car companies had to replenish their fleet; however, due to the discussed chip shortage, they had to turn to the used car market.

 

Thus, the used car market has been seeing an unexpected boom in prices, where in many cases the prices have surpassed the prices of new cars. Thus, this is a great time to be selling cars and not buying as new car prices have increased to, owing to the supply disruptions.