Used car sales are the ultimate supply-and-demand business, according to the Rochester Auto Dealers Association’s Brad McAreavy, who said prices have spiked during the COVID-19 pandemic.
According to analysis from I-See-Cars.com, used car prices rose 27% nationwide and about 31% in the Rochester area in November. These increases continue a trend that has occurred for much of 2021. The biggest jumps are among small or economy cars.
McAreavy tied the price growth to a lack of microchips that are needed for new cars.
“The demand for the chip is much higher than it’s been historically, and the companies that build those chips are not in a position to meet the demand,” McAreavy said. “It’s unprecedented. I’ve been in the car business almost 40 years. I’ve never seen the industry in the condition that it’s in today.”
When orders for new cars dried up in the depths of the pandemic, the chip makers moved production to provide products for other industries. Since the chips that power much of the electronics in cars are often not available, new cars are harder to find.
“When some people are ordering a car today, it’s taking months to get that car, just because of where production levels are,” McArevey said.
For consumers, McAreavy said, the good news is that used cars are worth more than even a few months ago. The bad news is new cars cost more, too.
He said many cars that would typically be traded in for a new car aren’t, and decisions like this are clogging the pipeline of used cars to dealerships, spiking their prices for the foreseeable future.
McAreavy said he expects these conditions to remain into at least the next year as chip manufacturers increase their capacity to make more. He also said some companies are considering reshoring, or bringing semiconductor manufacturing back to the United States.
“There’s no short-term solution to this,” he said. “Everybody is just struggling to get through this cycle. It’s very unclear on when this thing is going to normalize. Whether it’s the first quarter of next year or the second quarter of next year or longer when car production will reach back to more normal levels.”