Lack of microchips leads to vehicle price spike

A global shortage of computer chips means that prices are up and certain vehicles may be harder to come by for Connecticut residents looking to purchase a new car.

Connecticut’s average new car sale price in August 2020 was $36,916. Last month, it was $42,252, nearly a 14.5 percent increase, according to data from Kelley Blue Book.

For used cars, the August 2020 price was $22,236 whereas the August 2021 price was $25,316, a 13.9 percent rise, according to Kelley Blue Book’s data.

Prices nationally have spiked in recent months, said Matt Degen, a Kelley Blue Book editor.

“Nothing has really been normal for the past year and a half. This is not normal either, the price rises that we’re seeing,” Degen said.

Microchip production slowed during the early stages of the COVID-19 pandemic as some factories shut down. And the longer people remained in isolation, the more electronics they purchased for working and attending school from home. This has resulted in a shortage that’s affecting the car industry in a major way, said Jeff Aiosa, director for the Connecticut Automotive Retailers Association.

“That’s really the catalyst to the shortage,” Aiosa said. “Manufacturers in the peak of the pandemic were shut down on average two months … Because of that, they stopped placing orders for microchips, and that industry kept producing but pivoted to the high demand of the people that were working remote or the school students that were learning from home. And that demand just shifted from our industry to computers, to gaming.”

Manufacturers use microchips for climate control, bluetooth, GPS and some safety measures, among other features. Most of these chips are manufactured abroad, and some factories have shut down, Degen added.

It’s unclear exactly how long the deficit will last, although a top chip manufacturer said in a recent Kelley Blue Book article that it could take until 2023 to normalize.

“The factories only have so much capacity,” Degen said. “Even though the shutdowns and things stemmed from last year, it takes a while to catch up. Building a car, you don’t just snap your fingers and make it happen.”

But Aiosa is hopeful the market will normalize during 2022, with assistance from the federal government. Some manufacturers are making vehicles without chips, meaning people can either forgo certain features that a chip provides or can come back and get a chip installed when it’s available.

General Motors and Ford closed a few plants in North America for a week and cut down on production this month because of the chip shortage.

Paring down production means big manufacturers are focusing on the more popular vehicles. So buyers who want a less popular new automobile might have trouble finding it. And customers may have to compromise on features such as vehicle color, Degen said.

Used car prices are also up because as the cost of purchasing a new car has risen, more people have opted to look for a used car, experts and industry professionals said.

“We’ve been seeing a high level of demand, and it hasn’t just been tied to the area,” said Andrew Koenigsberg, operations manager at CarHavn, a vehicle sales and repair shop in New Haven.

Lately, more customers have come into the shop from New York and Massachusetts because they’re not able to find used vehicles as easily locally, Koenigsberg said.

Several have said they’re looking for a vehicle ahead of a vacation and elected to take a road trip rather than fly, Koenigsberg added.

“It’s just become a big issue of supply and demand where buying vehicles has been very hard for dealers overall,” he said of the rising prices and microchip shortage. “They’ve just gotten very expensive.”

The good news, Degen said, is for those who want to sell their cars, the market is good. Used vehicles are fetching “really, really good prices.”

Shifts toward purchasing used vehicles and the lack of microchips may also lead manufacturers to stop offering incentives “as they will likely sell most of what they have,” Fred Carstensen, a finance professor at the University of Connecticut’s School of Business said via email. Earlier this year, Carstensen worked on a study examining the economic significance of Connecticut’s automotive dealers.

Aiosa says there’s been a drop in manufacturer incentives as well as a drop in number of sales nationwide.

For consumers looking to buy a car, Degen advised them to “be patient.”

“If you’re shopping for a car, don’t expect a great deal,” he said. “The sticker price on a car is probably what you’re going to be paying. There probably won’t be a whole lot of negotiation.”

Aiosa suggested that if consumers are looking to save money and don’t want to sacrifice any of the “creature comforts” that a chip provides, they wait to buy if they can.

“If they’re in a position to wait, that would be my advice,” he said.

“Manufacturers in the peak of the pandemic were shut down on average two months … Because of that, they stopped placing orders for microchips, and that industry kept producing but pivoted to the high demand of the people that were working remote or the school students that were learning from home. And that demand just shifted from our industry to computers, to gaming.”

Jeff Aiosa, director for the Connecticut Automotive Retailers Association

Getty Images A global shortage of computer chips means that prices are up and certain vehicles may be harder to come by for Connecticut residents looking to purchase a new car.