Inflation, shortage of computer chips, new car prices

Used car prices are up 40.5% from a year ago, while new car prices are up 12.2%, according to the US Bureau of Labor Statistics.

BOISE, Idaho- This article originally appeared in the Idaho Press.

The inflation challenge is real. Ask anyone trying to buy a new or used car.

Used car prices are up 40.5% from a year ago, while new car prices are up 12.2%, according to the latest inflation figures from the Bureau of Labor Statistics. the United States.

The increases are partly due to inflation – the US economy posted an inflation rate of 7% last year, the highest since 1982.

But there is another determining factor affecting American conductors: a shortage of semiconductors.

Also called microchips, semiconductors are crucial components of modern vehicles. Rear-view cameras, blind-spot detection, airbag deployment, emergency braking systems and head-up displays are all features aided by semiconductors.

Without technology, new vehicles cannot be built and sold. According to Dr. Anne Walker, chair of the economics department at Boise State University, the shortage can be attributed to several different things: during the pandemic, increased use of technology that uses microchips; one-time issues – like the severe winter storm in Texas in 2021 – that temporarily shut down some factories; and common workforce barriers related to COVID-19.

Semiconductors have an inelastic supply, Walker explained, which means it’s difficult to increase production regardless of demand.

“Expanding production capacity requires huge up-front capital expenditures,” Walker said. “Capacity expansion also requires a relatively long lead time due to the degree of technological sophistication in the production process.”

Thus, consumers are turning to used cars. But these aren’t as easy to buy either.

Due to the lack of new cars, used cars are being auctioned off to dealerships at much higher prices than in the past. Dealerships must keep their lots full and “pay what it takes to get the vehicles they need,” said Brad Tibbs, owner of Good Life Motors in Nampa. “It really drove the prices up.”

Tibbs said his sales have held steady despite the uncertainty of the pandemic, inflation and supply chain issues. Americans spent less on services at the start of the pandemic, but were full of money from government stimulus payments, Walker said, putting them in a better position to buy a car. Low interest rates on purchase financing also helped.

“We have to adapt quickly to the new market and we pay more for vehicles when we buy them; we sell them for more and so it works out well for us,” Tibbs said. “Unfortunately for consumers, prices are about 30% higher than two years ago for the same vehicle.”

Some people buy cars in cycles, Tibbs said, and rising prices haven’t slowed those people down, just changed their habits from buying new cars to buying used cars. Others choose to maintain their cars longer instead. But repairs are also getting more expensive, Tibbs said, and possibly diminishing returns can strain someone’s hand.

“A lot of people don’t have a choice,” said Dennis Combs, owner of Combs Car Corral in Boise and Nampa. “They need a car that works.”

Combs has been in the auto business for more than 50 years and doesn’t think car prices will permanently deflate to pre-pandemic levels. He likened it to the way fuel prices have risen steadily over decades of floating.

“Imagine paying $1 a gallon for gas, then falling fast asleep and suddenly paying $4 a gallon,” Combs said. “You slowly acclimatize and you look around and you’re like, ‘Oh, I guess that’s the new price.’ That’s kind of what’s going on.”

Experts told PR Newswire they expect supply constraints and income statements to drive further price increases in the first half of the year, before “normal price depreciation not come back”. The Federal Reserve will raise interest rates in March, Walker said, which will likely dampen demand.

It all comes back to the semiconductors and the trickle effect they create.

“The rapid rate of increase is unlikely to continue indefinitely,” Walker said. “At some point, the capacity of the chip industry will increase. The only question is, ‘How long will it take?'”

This article originally appeared in the Idaho Press, learn more at IdahoPress.com.

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