The pandemic impacted almost all types of business, with vehicle production suffering greatly. Anyone who’s looked into buying a new car recently may have noticed higher prices and lower availability of most new cars than they would have expected. Below, we dig into some of the main ways that supply chain disruptions are affecting the car buying process and what some are doing in response.
What’s causing these disruptions?
The main reason behind these supply chain headwinds is that electronic chip production was cut drastically by manufacturers at the onset of the pandemic. Automakers feared that there would be long standing economic hardship and lower demand due to the pandemic, so they altered their semiconductor orders accordingly, and chipmakers quickly shut down the production of their component parts in response.
On the contrary, the economy and consumer spending bounced back quicker than expected, so carmakers and dealerships saw a return in demand much faster than chipmakers have been able to rebound production. In sum, the demand for new cars has drastically outstripped manufacturers’ abilities to supply them.
Electronic chips and semiconductors are a necessary part of manufacturing vehicles today, controlling the collision-avoiding sensors and entertainment systems, among other things. So, the shortage of these component parts paired with overwhelmed shipping ports, low supply of shipping containers, and the lack of skilled drivers to transport vehicles to dealerships have all had major impacts on the auto industry.
What’s being done in response?
Though the lack of supply of new cars has caused the demand and pricing for used cars to skyrocket, many people are now willing to make an order for the new car they want and wait months to receive it, even if it still has a higher price tag. Dealerships themselves have changed how they do business as well–this new model of pre-ordering vehicles has made haggling and test-driving things of the past.
Dealerships note that customers are more flexible today and are still able to find good deals, especially when trading in their current vehicles. So, even though the new cars they are buying are more expensive, the dealerships are also willing to pay higher prices for trade-ins, helping to offset the higher costs for consumers.
In addition, semiconductor manufacturers are mostly internationally-based, and the US has been unable to meaningfully boost production domestically, though automakers are beginning to see chip supplies become more normal so far this year.
All in all, buying a car under normal circumstances can be time-consuming and stressful, and these recent setbacks from supply chain issues haven’t made the process any easier. While these car-buying conditions won’t last forever, they are expected to persist over the coming months as chip supplies rebound and car manufacturers increase production.
Bailey Schramm is a writer in partnership with Faxage online faxing service.