Skip to main content

The chip shortage is making cars more expensive

The chip shortage is making cars more expensive

/

But that’s not slowing down buyers

Share this story

A General Motors Car Dealership Ahead Of Earnings Figures
Image: Getty Images

New cars are getting more expensive thanks to the global semiconductor shortage. And the price of used cars is going up, too.

About 13 percent of people who bought a new car in the US in April paid above sticker price, according to Jessica Caldwell, director of insights at Edmunds. Last year, only 8 percent of buyers paid more.

New vehicle prices have been on the rise for a while now, but the shortage is only worsening the trend. Automakers are temporarily shutting down production lines around the world. The chips they are able to source are going into the most popular new vehicles — the ones that make the most money. To make matters worse, demand for new cars and trucks is increasing, leading to markups. This has pushed more consumers to the used vehicle market, which is… driving up prices there, too.

General Motors said this week that its new full-size trucks cost 10 percent more than they did last year, and its full-size SUVs cost more than 20 percent more. Ford’s new vehicles shot up in price by $1,900 more than the average industry increase in 2019. But overall sales are way up

“Prices are just soaring.”

“Prices are just soaring,” Caldwell says. “And as high as the prices go, it seems like it doesn’t really deter people.”

Prices will likely keep climbing as the chip shortage keeps thinning supply. Automakers like Ford and Volkswagen have said they expect to take an even worse hit to production this quarter. Ford will only make half as many cars as it originally expected, the company said this week during its quarterly investor call. “We are, for sure, in crisis mode,” Volkswagen boss Herbert Diess said about the next few months

Some, like GM, have said they think lower output won’t be a huge problem. But the supply of new cars will further dry up for other reasons. Up until now, dealers were working with a cushion of inventory that was built up before the production halts began. The summer months are typically when seasonal demand for new cars really starts to rise, Caldwell says, and this is also no typical summer. Millions of people received stimulus checks, and vaccines for the coronavirus have finally been widely rolled out. “I imagine this year [demand] will be even higher because people are itching to go out, go places, go on road trips, go back to school,” Caldwell says.

The price of a new car was already increasing in the US as consumers flocked to larger SUVs and trucks with more advanced features, so the chip shortage has supercharged the trend. There are other contributing factors, too. Higher sticker prices became easier to swallow once automakers and banks started offering loans with 84-month and 96-month terms. Those extra-long financing options got even more palatable when automakers started offering zero-percent financing deals to boost sales early in the pandemic. 

The high demand for new cars could be tested as more automakers are starting to sacrifice certain features due to the chip shortage. Some Dodge Ram pickups will no longer have an intelligent rear view mirror as a standard feature, and Nissan is eschewing navigation systems in many of its vehicles. GM decided in March that it would keep making its most popular trucks without a particular module that normally increases fuel economy, meaning the trucks will pollute more and guzzle even more money. 

Low supply, high demand, and it’s only going to get worse near term

But there is already such an inventory crush, and so many people buying, that these changes might not matter much, Caldwell says. “I think [those features] can delight you and probably move you closer to a vehicle purchase, but people don’t drive different cars all the time and may not be savvy enough to know what should or shouldn’t be there,” she says. 

With wages relatively stagnant, Cox Automotive executive analyst Michelle Krebs says she worries this will make it even harder for average buyers to get into newer, safer cars. “The average household income used to be enough to buy a new car, but it’s not anymore. It’s more like a 14 year old used car,” she says. “It’s the opposite of what Henry Ford envisioned — people who make the car can’t afford the new cars, right?” 

But used car prices are going up, too, aided in part by the chip shortage. Higher average selling prices for new cars paired with increasingly low inventory means more people are turning to the used car market, which is causing more competition between buyers.

Used car prices were already on the rise for a few other reasons. Rental companies typically sell into the used car market, but they dumped much of their inventory last year as the travel industry flatlined. Now, with travel recovering as more people get vaccinated, rental companies are bidding against used car buyers to get some of those vehicles back, which is pushing up prices. 

Newly off-lease cars are another usual source for the used car market, but automakers have been encouraging some customers to extend their leases because of winnowing new car inventory, says Krebs. A decline in repossessions during the pandemic has also weakened the supply of used cars. 

Sedans actually rebounded a bit, but it won’t last

The chip shortage has exacerbated many of these pricing trends, but it may have temporarily reversed one that previously seemed irreversible. According to data compiled by Ward’s Intelligence, sedans actually picked up a few percentage points of overall market share in the US in April. Karl Brauer, executive analyst at iSeeCars.com, tells The Verge his team sees the same thing. That could mean some buyers are considering a much different middle-ground option between fighting to buy the new trucks and SUVs that are in demand and scouring the used market: settling for a smaller, more traditional new car. 

While that trend would be better for pedestrian safety and greenhouse gas emissions in the long run, it’s not likely to stick. US automakers have all but abandoned sedans, and even the foreign automakers who’ve been happy to fill that vacuum for the last few years are also focusing more on pickup trucks and SUVs. Long term, Krebs says, consumers are just willing to pay more for bigger, more well-equipped vehicles. 

“The one thing they are not willing to do, they will not go from a sport utility vehicle to a car,” she says. “That is just dead on arrival.”

Related:

Today’s Storystream

Feed refreshed Sep 25 Not just you

E
Twitter
Emma RothSep 25
Rihanna’s headlining the Super Bowl Halftime Show.

Apple Music’s set to sponsor the Halftime Show next February, and it’s starting out strong with a performance from Rihanna. I honestly can’t remember which company sponsored the Halftime Show before Pepsi, so it’ll be nice to see how Apple handles the show for Super Bowl LVII.


E
Twitter
Emma RothSep 25
Starlink is growing.

The Elon Musk-owned satellite internet service, which covers all seven continents including Antarctica, has now made over 1 million user terminals. Musk has big plans for the service, which he hopes to expand to cruise ships, planes, and even school buses.

Musk recently said he’ll sidestep sanctions to activate the service in Iran, where the government put restrictions on communications due to mass protests. He followed through on his promise to bring Starlink to Ukraine at the start of Russia’s invasion, so we’ll have to wait and see if he manages to bring the service to Iran as well.


E
External Link
Emma RothSep 25
We might not get another Apple event this year.

While Apple was initially expected to hold an event to launch its rumored M2-equipped Macs and iPads in October, Bloomberg’s Mark Gurman predicts Apple will announce its new devices in a series of press releases, website updates, and media briefings instead.

I know that it probably takes a lot of work to put these polished events together, but if Apple does pass on it this year, I will kind of miss vibing to the livestream’s music and seeing all the new products get presented.


E
External Link
Emma RothSep 24
California Governor Gavin Newsom vetoes the state’s “BitLicense” law.

The bill, called the Digital Financial Assets Law, would establish a regulatory framework for companies that transact with cryptocurrency in the state, similar to New York’s BitLicense system. In a statement, Newsom says it’s “premature to lock a licensing structure” and that implementing such a program is a “costly undertaking:”

A more flexible approach is needed to ensure regulatory oversight can keep up with rapidly evolving technology and use cases, and is tailored with the proper tools to address trends and mitigate consumer harm.


Welcome to the new Verge

Revolutionizing the media with blog posts

Nilay PatelSep 13
A
Youtube
Andrew WebsterSep 24
Look at this Thing.

At its Tudum event today, Netflix showed off a new clip from the Tim Burton series Wednesday, which focused on a very important character: the sentient hand known as Thing. The full series starts streaming on November 23rd.


A
The Verge
Andrew WebsterSep 24
Get ready for some Netflix news.

At 1PM ET today Netflix is streaming its second annual Tudum event, where you can expect to hear news about and see trailers from its biggest franchises, including The Witcher and Bridgerton. I’ll be covering the event live alongside my colleague Charles Pulliam-Moore, and you can also watch along at the link below. There will be lots of expected names during the stream, but I have my fingers crossed for a new season of Hemlock Grove.


T
Twitter
Tom WarrenSep 23
Has the Windows 11 2022 Update made your gaming PC stutter?

Nvidia GPU owners have been complaining of stuttering and poor frame rates with the latest Windows 11 update, but thankfully there’s a fix. Nvidia has identified an issue with its GeForce Experience overlay and the Windows 11 2022 Update (22H2). A fix is available in beta from Nvidia’s website.