In the Market for a Car? You Might Be Searching for a While. The pandemic continues to impact the automotive industry and raise prices for consumers.

By Chris Davenport

Opinions expressed by Entrepreneur contributors are their own.

The aftershocks of the Covid-19 pandemic are still being felt all over the world in the automotive industry. It wasn't enough for auto sales to plunge 30% last year the worst loss since the Great Recession. Other negative factors are at work in the global automotive market, and they are controlling the price of new and used cars these days.

First is the most glaring problem. Not only did sales drop so low last year, but there was also a significant loss of supply due to less manufacturing during the lockdowns. As a result, car prices, especially new ones, shot up to a little over $38,000 in May of 2021. With prices so high, many consumers were turned off and sought to hold on to their older cars for a more extended amount of time. With fewer people giving away or selling their used cars, there was a loss of supply as well, which in turn raised the cost of used vehicles close to a whopping $25,000, a 21% increase from the year prior and the highest increase ever recorded from one year to the next, according to automotive resource Edmunds.

Related: It's the Worst Time to Buy a Car — But What If You Have To?

The semiconductor industry continues to lag

Holding up new car production is the semiconductor industry, which, because of the massive lockdown, is still lagging way behind on computer chips and other accessories mandatory for new cars. Already, Ford, General Motors and other major car manufacturers have cut their production numbers drastically. In the first quarter alone, according to Cox Automotive, the United States had 3.4 million fewer new cars in production, which is likely going to keep those prices alarmingly higher and force consumers' to maintain their used cars for the foreseeable future.

Additionally, many people are going back to work after months of lockdowns, quarantines or layoffs. As a result, the demand for cars is back at its pre-pandemic level, but unfortunately, the supply is still lacking. In addition, Uber, Lyft and other public transportation are becoming more critical, which means more cars for these companies are needed to compensate. Unfortunately, they're not available, which again drives up the prices. On the other hand, with the Covid-19 virus still around, some people might not be ready for public transportation and want their own cars for work and leisure, so the demand rises even more.

Related: Why a Car Rental Change Was Almost a $1,700 Mistake - NerdWallet

Many buyers are willing to pay more

The people that never really left work at all are the more fortunate ones in this climate. According to some estimates, American consumers may have an extra $2.4 trillion in savings compared to last year. This was due to less spending on going out to eat, gasoline fill-ups or summer vacations. Consumers also received large residual payments to compensate their families during the worst of the pandemic. So, this has resulted in more buyers who don't mind paying for the extra options on a brand-new car. Because of this, car manufacturers are trying to cut back on mass production of the less popular vehicles to save the surplus semiconductor chips they still have. This, unfortunately, again causes a lack of supply and steers consumers back to either used cars or keeping their own for longer than they wanted.

Is there a rainbow on the horizon, though? Perhaps when new car manufacturing gets going at a full tilt and the semiconductor market strengthens again, we'll see the new car inventory expand and production increase. But time will tell. If it remains feasible for used cars to stay serviced, maintained and tuned up at reasonable prices, they are still going to be on the road for quite a while. And with the average age of a used car still at an all-time high of 12.1 years, according to HIS Market Researchers, at least we're learning one positive thing: American cars are indeed still being built to last.

Related: Ready to Buy a Used Car? Here's What You Need to Know.

Wavy Line
Chris Davenport

Entrepreneur Leadership Network Contributor

Founder of AutoParts4Less.com

Chris Davenport is the CEO of AutoParts4Less.com, a subsidiary of the 4Less Group, the world's first automotive parts multi-vendor marketplace. He began his career in the ecommerce world by launching LiftKits4Less.com, the largest online seller of suspension lift systems for trucks, SUVs and jeeps.

Editor's Pick

She's Been Coding Since Age 7 and Presented Her Life-Saving App to Tim Cook Last Year. Now 17, She's on Track to Solve Even Bigger Problems.
Lock
I Helped Grow 4 Unicorns Over 10 Years That Generated $18 Billion in Online Revenues. Here's What I've Learned.
Lock
Want to Break Bad Habits and Supercharge Your Business? Use This Technique.
Lock
Don't Have Any Clients But Need Customer Testimonials? Follow These 3 Tricks To Boost Your Rep.
Why Are Some Wines More Expensive Than Others? A Top Winemaker Gives a Full-Bodied Explanation.

Related Topics

Business News

California Woman Arrested For $60 Million Postal Service Scam

Lijuan "Angela" Chen faces two charges that each carry a maximum sentence of five years in prison.

Science & Technology

'We Were Sucked In': How to Protect Yourself from Deepfake Phone Scams.

Phone fraudsters are using AI to clone the voices of loved or trusted people to rip them off. Here's how to detect if the phone is real or robot.

Marketing

5 Things You Can Do Now to Improve Email Marketing

Abide by these simple tricks to help your campaigns gain more visibility and generate revenue in the process.

Leadership

The Return to Office Movement is Causing a Mental Health Crisis. Employers Are Part of The Problem — But They Can Be Part of The Solution.

Employee mental health substantially worsened with the return to office demands, and it's causing disengagement and low morale. The solution demanded by employees is the answer.

Growing a Business

Trendspotting 101 — How to Stay Ahead of the Curve in Your Industry

Learn how to spot and capitalize on emerging trends in your industry with these practical tips.