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With the auto industry still reeling from a computer chip shortage and low production due to COVID-19 shutdowns, rising car prices show no signs of abating soon—and consumers are bearing the brunt of it, with record high average asking prices for both new and used. Nora Naughton, automotive industry reporter for the Wall Street Journal, joins from Detroit to explain why what we know about buying cars has completely changed.
The restrictions and shutdowns during the COVID-19 pandemic beginning in 2020 combined with a computer chip shortage are now driving up prices in the auto industry. And if you've looked at a new or a used car recently—sticker shock is a very real thing.
According to a recent survey, new vehicles are now selling for an average price of more than $44,000—up $10,000 since the start of the pandemic—used cars are now averaging $30,000, an all-time high. For more on what's ahead for car buyers, I spoke with Nora Naughton, automotive industry reporter for the Wall Street Journal who joined us from Detroit.
So, Nora, we have heard forever that buying a new car was not as good an idea as buying a used car because you will lose money on it and used cars right now are priced so high that it makes you want to go back and buy a new car if you're in the market. What is happening that has completely turned the automotive economy upside down?
There are not enough cars, is the bottom line, new or used. What's happening in the used market for inventory is that people are holding onto their cars for longer. There were at the start of the pandemic a lot of forgiveness programs for leases and car loans that encouraged people to not turn in their cars and especially lease turn-ins are a very reliable source of certified pre-owned vehicles in the auto industry. So without that steady stream, there has been a real dogfight for the trade ins that go through the auction. Dealers are bidding up the price on everything and then that cost then trickles down to the customer.
We've heard stories that people are having to pay several thousand dollars over the sticker price.
It's nothing like I've ever seen. It's really wild to see these, they're called market adjustments. They're usually reserved for things that are limited builds like a special edition Ferrari or Lamborghini, that there's only six ever made of. But now you see them on run of the mill sedans and family cars, and we're talking $10,000, $20,000 extra on top of the manufacturer's suggested sticker price.
Tell me a little bit about this chip shortage. How long is it going to last and how long is it going to have this impact on the car market?
Last I checked with the experts, clear through 2022. We've been hit with a double whammy here. As soon as production got back online after shutdowns during COVID in 2020, that's when the chip shortage hit. So we're trying to recover from sort of two bouts of shutdown.
So if there is a shortage in chips, what steps are automakers taking to try to keep cars coming?
Ford and GM are sort of taking matters into their own hands. They're trying to bring more chip production in-house. I think we're going to start seeing a lot more of that, not just in chips, but in other parts of automotive supply. And really both COVID and this chip shortage has been a huge lesson in how delicate this global web of supply is for the automotive industry.
If you find yourself stuck needing a new car, needing a used car, needing another vehicle, what should you do?
If you can avoid it, I would avoid buying a vehicle, but if you are in a situation where you need to buy something, you need to do your research. You need to make sure that you're checking a broad swath of dealers in your area. Maybe even a little further outside your area than you would normally go. Understand that right now, the deal is the sticker price, so try and find places that don't have these market adjustments. If you can, or if you do find them, try to negotiate your way down sticker. The other thing that you can do if you have something that you're trading in is really do your research on how much your car is worth. That is where you're going to be doing the negotiating. You're not going to be able to negotiate the new price of your car, but you will be able to negotiate how much you can get for what you have.
Nora Naughton, The Wall Street Journal's Automotive Desk in Detroit, thanks so much for joining us.
Thank you for having me.
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