Why American's Need to Brace for Higher Used Car Costs

Used car prices are expected to remain high until 2023 due to the global microchip shortage.

Right now is not a good time to buy a used car. According to Kelley Blue Book, the average used car in America is $28,205, 28% higher than one year ago and 42% higher than in December 2019. Used car prices aren’t the only thing that has increased dramatically. According to new data released by the U.S. Bureau of Labor, consumer prices are up by 7.9% in the last 12 months, the highest in 40 years.

Worldwide shortage of microchips

The price of used cars has spiked considerably due to high demand and a worldwide shortage of semiconductor chips. Also known as a microchip, they act as the brain for modern vehicles. According to Goldman Sachs, new vehicles require about 40% more microchips than cars made before the pandemic do. The average new vehicle requires 298 computer chips.

When the global pandemic began in March 2020, auto companies anticipated that sales would drop, and so they slashed microchip orders. As a result, microchip manufacturers reduced chip output. The global economy, however, bounced back faster than expected, with people buying more chip-heavy electronics.

With only a few microchip manufacturers worldwide, they have been unable to keep up with demand. Even with all chip manufacturers operating at full capacity, experts predict that the microchip shortage will last until 2023. Until car manufacturers acquire enough microchips, Americans may continue to see high used car prices.

What options do Americans have?

Higher used car prices combined with high inflation, and all-time-high oil costs are squeezing family budgets. Using a budgeting app might help you find some extra ways to save. Based on your personal finances and what your needs are, it may make sense to wait to purchase a vehicle. Taking care of your current car can help it last longer.

If you have to purchase a car, look at expanding your search, as you may have to compromise on your wishlist. If you lease a car, you may have to do some extra research before your lease ends to find affordable options. On a positive note, you may be able to get a higher price if you sell your used vehicle, helping offset the cost of a new car. Be prepared, and you may be able to find a great deal and act quickly on it.