A perfect storm is brewing that is leading to an increase of new and used car prices across the United States.
“You might pay above list price and drive a bit farther to get the car that you want, but if you know you’re going to need a new vehicle in the next few months, definitely pull the trigger now before this situation gets any worse,” Edmunds’ Senior Manager of Insights Ivan Drury said in a press release.
Even used cars prices have soared because of the limited supply of cars and the increased demand for vehicles.
“Used-vehicle prices have shown no signs of softening and are expected to remain exceptionally strong for the foreseeable future,” said J.D. Power Valuation Services Vice President Jonathan Banks in a press release.
The semiconductor shortage comes as a result of increased demand for electronics during the COVID-19 pandemic.
Now as demand for cars skyrockets, automobile manufacturing plants don’t have enough semiconductors. This is because of semiconductor companies focusing their attention to producing chips for electronics during the COVID-19 pandemic.
Semiconductor manufacturers in the United States are stepping up to try to meet the demand of chips as Intel announced its plan to build two semiconductor fabs, or factories where semiconductors are produced. The plan will cost an estimated $20 billion.
“These fabs will support expanding requirements of our current products and customers, and provide committed capacity for foundry customers,” Intel CEO Pat Gelisinger said during Intel Unleashed.
Even with increased efforts in producing semiconductors, it may take a while for the shortage to end.
Increasing car prices affect Utah
The XL option only goes up $195 from $30,440 in 2020 to $30,635 in 2021. As upgrades are put on the F-150, the price gap between the years also increases. The biggest gap between 2020 and 2021 is the Platinum option, which jumps from $57,215 to $60,805.
The price of a F-150 may increase even more soon, as Ford will stop producing F-150s and Ford Broncos at eight plants for an undisclosed amount of time because of the semiconductor shortage.
Even with increased prices, people continue to buy cars at a higher rate than in 2020. But delaying the purchase of a car unless it is a necessity is a viable financial decision, BYU Professor of Finance Jim Brau suggests.
These increased prices aren’t swaying people from purchasing a car as they turn to loans and monthly payments to pay for their desired vehicle. Brau said these payment options may not be the best options for the purchaser, though.
“There’s a lot of levers these guys can pull to put you in a car you can’t afford,” he said.
These levers appear to be working as auto loans account for 9.5% of American debt, second behind mortgage and student loan.
Failing to pay auto loans and monthly payments bring along drastic consequences for the buyer. “If you fail to make a payment, they can take your car and destroy your credit,” Brau said.
With demand and car prices high, there are alternative methods of transportation for Utah residents. The UTA offers travel by train from Provo to Ogden, as well as local bus and rail routes in Salt Lake, Utah, Davis and Weber counties.