Shortages of auto chips or the silicon microchips needed to produce new cars have left many dealers empty nationwide.
On the contrary, this shortage of auto chips has led to a boom in the used car business.
Small Business Trends contacted a local used car company to find out how they handled the current situation.
“We find that people are looking for later-model used cars with low mileage,” says Jerry Enders, owner of the used car business in Pennsylvania for more than 40 years.
“The prices have gone up by 20 to 30 percent,” he says. “Price is off line due to lack of chips.”
The lack of cars in chips leads to the unloading of a lot of new cars, and the demand for used vehicles is high
Car manufacturers held a small portion of the chip market. Before the pandemic, the new auto business was booming.
In 2019, 17 million new cars were sold in the United States. And in 2020, 14 million new cars were sold. During the pandemic, automakers have been shuttered and orders for chips and semiconductors have been cancelled.
At the same time, millions of people have started working from home, which has contributed to an increased demand for computers and other electronic devices — and the chips that those items contain. Therefore, automakers have lost their seats at the chip table.
The simplest new vehicles, not equipped with many additives, have no less than thirty segments. Luxury SUVs have hundreds.
The worldwide chip shortage is expected to continue until late 2022, with the new-car production crunch extending well into 2023, according to numerous reports.
Impact of chip shortage on commercial vehicles
If your business has some rental vehicles with low mileage, or you’re driving a model vehicle that’s a few miles behind, you’re in the driver’s seat.
New car dealers struggle to meet demand, while it’s a seller’s market for used car dealers. Compared to the real estate boom, prices are above “book” value. In fact, the current price of a used car is at least 10-30% higher than its actual value.
Is this the perfect time to trade in your fleet? Or your personal car?
Before doing this, you need to ask yourself an important question, considering the current state of the car market: How will you replace those vehicles?
Availability of the market for used vehicles amid a shortage of chips
Historically, a large source of used car market shares has arisen from rental car companies and non-rental vehicles. Vehicles from these sources went to the second-hand market when they came within a certain distance, usually less than 50,000 miles.
During the pandemic, the travel industry has been paralyzed and employees are working from home. Although the rental and rental vehicles are a year or two old, they haven’t hit the mileage.
Enders points out that the supply to the used-car market was also generated from additional trade when people bought a new car.
Should you consider trading in a rental or personal vehicle? Before you do that, line up your replacement car. Despite the higher prices, you should weigh the cost of repairing an old car against the cost of financing a “newer” used car.
Enders advises that you should still trade when you can. Identify some of the key factors in making this decision:
“Used-car dealers can’t stop buying inventory, buying late-model cars with low mileage,” Enders says. “The reason for this is that the banks will not fund vehicles with higher mileage, or vehicles that are 10 years old.”
It is advised to trade a vehicle before it reaches 70,000 miles on the odometer. When the mileage is higher, it may not be accepted by dealership used car dealers.
Declining New and Used Car Stocks – What Are Your Options?
Currently in the new car market, SUVs and trucks are in greatest demand. Enders said that in both the new and used car markets, this demand is quickly shifting from larger, gas-guzzlers to smaller versions.
Enders sys reports that in the past three months, potential buyers have asked a new question: “What is the fuel mileage of this car?”
“We are seeing high demand for Subaru and also four-cylinder SUVs,” he said. “People are very aware of mileage, and no one asked me about that a year ago.”
No need to negotiate the sticker price. With inventory low, you have little bargaining power. MSRP (Manufacturer Suggested Retail Price) is the price.
Enders said industry readiness guidelines such as the Kelly Blue Book and NADA should be treated as guidelines.
He said, “They are guides.” “The prices are higher than published.”