Edmunds: Less choice, higher car prices in chip shortage

The pandemic appears to be receding in the U.S. and the economy is recovering, yet car shoppers heading back to car dealerships are in for a surprise: There are fewer vehicles to choose from and higher prices as a result.

New car inventory is down 48% from last year, with trucks and SUVs hit the hardest. Plus, the percentage of people paying above sticker price has risen from 8.1% in April 2020 to 12.7% in April 2021, according to Edmunds data. That’s the highest percentage on record since 2002.

The culprit is a global shortage of semiconductors or microchips, as they’re commonly called, which are critical components for myriad features such as infotainment systems, driver aids and more. The pandemic caused many auto manufacturers to slow production and reduce the order of these chips, which electronics companies subsequently bought up.

Manufacturing new chips is an intricate process, and it will take many months before more are built to meet the demand. In the meantime, automakers have built thousands of new vehicles but can’t ship them to dealers because they’re missing the chips they depend on. This backup has led to fewer vehicles on the dealer lot and fewer discounts.

“At the rate we’re going, it’s going to be a lot tougher for car shoppers to find exactly what they want this summer,” said Ivan Drury, Edmunds’ senior manager of insights.

The chip shortage has also indirectly increased consumer demand for used cars, either as a less expensive alternative or because people simply can’t find the specific new vehicle they’re looking for. And dealerships will not be as willing to discount cars as long as demand exceeds supply across the board.

With this difficult shopping climate in mind, Edmunds’ experts have come up with tips to navigate the current market.

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