Car buyers need to be more patient in finding one they can afford-- whether it is brand new or pre-owned- as car prices continue to soar high as dealers struggle to maintain inventory.
According to Fox News, the price of used cars and trucks saw an increase of 31.4% over the past year. New vehicles jumped 11.1 in the latest Consumer Price Index.
Dealers also predict that the high price trend will continue for two years due to a shortage of semiconductor chips made in China used in manufacturing cars.
According to car information site Edmunds.com, in November, the average price of used vehicles in the US jumped to $28,011, a 39% increase within a year. A value that half of America's households can hardly afford now. Meaning, even somebody who has a steady income can hardly afford to buy a late-model car.
Jeff Schrier, who has been selling autos for 35 years in Omaha, Nebraska, has never seen such a spike in car prices ever since, and he feels the sentiments of car buyers at this moment. "It's quite frustrating for so many people right now," he said.
Car industry and Covid-19
The Covid-19 pandemic is partly to blame on the soaring car prices in the market as automobile manufacturers had suspended production from managing the spread of the deadly virus. This led to the low sales of new vehicles and fewer people trading in used cars and trucks. Coincidingly, the demand for laptops and monitors had increased due to strict travel restrictions, forcing people to stay at home, thus increasing the demand for communication gadgets. This resulted in semiconductor manufacturers shifting production from cars to consumer electronics.
Since there are is a limited supply of new cars, "the price of old cars increases," Diamond Cut Autos sales consultant Alexis Alvarez explained.
Another reason for the increase in average car prices sighted by dealers is that many consumers prefer more expensive SUVs and trucks than less expensive sedans. Car buyers now look for expensive features like automatic brake systems and lane departure warnings. This contributes to the climbing car prices.
However, most experts say the inflated vehicle prices aren't likely to ease in the near future due to the uncertainty brought by the pandemic, according to a CNN report.
For now, car sellers like Schrier try to convince lower-income buyers to be more patient about the few used vehicles that fit their budget.
The Solution To Soaring Car Prices
According to Dan Hersch, managing director in the automotive and industrial practice at AlixPartners, for car prices to normalize, supply chain issues must be addressed, and production must return to normal to balance supply and demand in the market. However, it is easier said than done as aside from shortages in semiconductors, there are also shortages of labor, shipping issues, and lots of other disruptions, as per Fortune.
To help alleviate the backlogs, President Joe Biden entered a deal to open the Port of Los Angeles on a 24/7 schedule. However, experts believe that this will not be enough in the long run. Still, the ultimate solution is to increase the production of automobiles domestically as well as to boost chip and semiconductor production in Asia. But it will take time to see the results.
