There has never been a worse time to buy a new or used car. Car dealership inventories are skimpy. Some automobile models, especially lower priced cars, are nowhere to be found. Prices for cars are soaring near historic highs. Forget deals. Car buyers are now paying above sticker price.
The automobile market is reeling after the pandemic upended the balance of supply and demand. Supplies of semiconductors used in today's cars and trucks remain a scare commodity. Semiconductors are a critical component in today's feature-rich cars.
The chips power back-up cameras, blind spot detection, adaptive cruise control, heads up displays, call phone integration, emergency braking, bluetooth connection, power management and many other features buyers want. That is driving the demand for semiconductors at time when supplies are tight.
This has triggered near record prices. The average new vehicle price in January reached $44,905. The previous high for any month in history was set last December when prices hit $45,283, according to J.D. Power. Industry sources are forecasting the average will top $47,000 before the end of the year.
In January, 80% of new car buyers paid more than sticker price, reports Edmunds, an online site that tracks pricing. Average buyers paid $900 above sticker, while luxury car shoppers shelled out $1,300 above sticker, according to data compiled by Kelley Blue Book.
The manufacturer's suggested retail price (MRSP) jumped nearly 15% from January a year ago and $7,000 higher than the average price paid before the pandemic began roiling the automobile and light truck industry. Customers price negotiations with salespeople are a relic of the good old days.
Some unethical dealers are tacking on up to $10,000 onto the sticker price of hard-to-get luxury cars and trucks, according to a report in The Wall Street Journal. Buyers in some markets are driving to neighboring cities for a better deal. Manufacturers are beginning to crack down on price gouging.
Spiraling new car prices and limited choices have steered buyers to used cars. But there are even fewer bargains to be found. Used cars now sell for an average of 42% more than before the pandemic. Good luck trying to find a car under $15,000. Used car prices have added one percentage point to inflation.
Auto inventories on dealer lots are stingy. According to the National Auto Dealers Association (NADA) inventory levels at the end of last year totaled 1.12 million units, down 59.1% compared to the number at the end of December 2020. January's inventory sank below one million units.
With fewer cars, auto dealers are selling vehicles as fast as they arrive on the lot. In January, nearly 53% of vehicles were sold within 10 days of being transported to the dealer, says J. D. Power. That would be great news for dealerships, if their lots were jam-packed with cars and trucks.
Auto manufacturers sold 14,697,837 cars and light trucks last year, the lowest since 2012, and 15.8% lower than 2020. Demand is strong enough to support 17 million in sales this year, according to research site CarGurus.com. But until inventories return to normal, total sales will remain suppressed.
Despite the depressed sales volume, G.M., Ford and Tesla all reported record revenues in 2021. With semiconductors at a premium, auto manufacturers shifted to producing higher-margin vehicles, including light trucks and luxury models to fatten profits.
Pandemic-induced shutdowns continue to hamper semiconductor supplies. The shortage has squeezed lead times. The gap between when a semiconductor chip is ordered and then delivered is at a record high of 22 weeks, despite some improvement late last year. Chip shortages are expected through 2023.
Car manufactures are taking matters into their own hands. Currently car makers rely on Taiwan and South Korea, which account for a combined 87% of the global semiconductor market. Chip makers shipped a record 1.15 trillion semiconductor units in 2021. Global sales topped $559 billion.
Ford signed an agreement with U.S. based semiconductor supplier Global Foundries to collaborate on developing microchips for Ford vehicles. GM is forging ties with San Diego-based Qualcomm and NXP Semiconductors, a company headquartered in the Netherlands but with a factory in Austin.
In an effort to reduce its reliance on China for chips, last year Tesla turned in house, switching to a new semiconductor technology using silicon carbide materials for its chips. The unique properties of silicon carbide made it more energy efficient and more durable than traditional silicon wafers.
That is good news for American automobile manufacturers. However, ramping up production at Ford and GM will take years.
American car buyers likely will be hanging on to their cars and trucks a little longer. The University of Michigan, which has been polling consumers for more than 50 years, found that more people today than ever before say it's a bad time to buy a car.
This is another case of American dependence on overseas companies for strategic components. Car makers are captives of chip fabrication firms in Taiwan and South Korea. It may take years, but at least GM and Ford are headed in the right direction, aligning with American chip suppliers.
A turnabout in the semiconductor supply chain can't come soon enough for American car and truck buyers.
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