Why The Used Vehicle Market Is BoomingBuying Tips & Tricks August 20, 2021
The automotive industry has been rocked by a unique set of circumstances that has precipitated extensive setbacks in vehicle stock and caused a frenzy of buying. The initial causing factor was, unsurprisingly, the root of most setbacks across industries - the COVID-19 pandemic. When businesses shut down across the world, automotive original equipment manufacturers (OEMs) were no exception. Most of these factories are located in Asia and one of their largest exports are microchips. A standard vehicle can have upwards 3,000 chips, which program anything and everything (The New York Times, 2021). From the wipers, door locks, anti-lock brakes, lights, to the engine control unit (ECU) - there are many different kinds… and they are not interchangeable. Each type is custom-designed for its application,” says Dr. Peter Frise, the director of the Centre for Automotive Research & Education and the University of Windsor (Wheels, 2021). Surprisingly, the auto industry only claims about 3% of chip sales revenue, so it inherently does not have the same “buying power of the entertainment industry and mobile communications industry” (Wheels, 2021). As the need for automotive chips dwindled during the pandemic, the requirement of electronic microchips - laptops, tablets, phones, computers - skyrocketed as students everywhere moved to online learning (Tech Republic, 2021). Chip suppliers were so overwhelmingly preoccupied with making chips for devices, due to the increased need, that they were unable to accommodate car manufacturers when their vehicle assembly plants finally reopened (CNBC, 2021). This, combined with severe winter weather in Texas, the worst drought in 50 years in Taiwan, and a fire at a Renesas chip factory in Japan, have all contributed to the ongoing chip shortage.
“Our biggest challenge is supply chain, especially microcontroller chips.
Never seen anything like it. Fear of running out is causing every company
to overorder - like the toilet paper shortage, but at epic scale.”
tweeted by Elon Musk, CEO of Tesla`
How Does the Chip Shortage Affect Used Vehicles?
Although the chip shortage initially affects the manufacturing of new vehicles, it has created a chain reaction within the automotive industry. The supply source for used cars from the general public is depleted as there are little to no new vehicles being added to the market, so substantially less trade-ins are occurring. As a result, this has created a boom in the used vehicle market.
“We’re seeing 7-to-8-year-old vehicles with more than
100k miles commanding prices today that are more like the [typical]
cost of 5-year-old vehicles with 60k-80k miles.”
Ivan Drury, Edmunds
Used car dealerships are now the highest source for supply and demand, dominating the rank of new car dealerships and inevitably supplying vehicles to not only the general public, but also to rental companies. Rental companies primarily buy brand new vehicles when replenishing their stock, and when they do, used car dealerships swoop in and acquire the cars that these companies want to sell. Thus, rental companies are a great source for companies like Curbie, and we know that these vehicles are in top condition in order to comply with company maintenance requirements. However, with the unmitigated lack of new cars to buy, rental companies are now buying their supply from auction or from used car dealerships in mass quantities (CNBC, 2021 & The Hustle, 2021). Furthermore, the chip shortage is much worse in the United States and this is evident in the amount of used Canadian vehicles being exported to our neighboring country. To compensate for the lack of new vehicles, American dealers are paying more for used Canadian cars to be shipped across the border, with the exchange rate working in their favor (CTV News, 2021). Executive Director at Used Car Dealers Association of Ontario (UCDA), Warren Barnard, explains that he has heard “stories from our members of ridiculously high used vehicle prices at auctions, which of course is ultimately passed on to the retail purchaser” (CTV News, 2021). Canada is simply being outbid by American dealers, adding to the lack of supply, and increasing the demand of used vehicles in Canada - in turn, creating a boom.
"Everybody is after used vehicles. I have been doing
this 20 years and this is the first time I have seen the price of used vehicles
go up in value 20 percent to 30 percent in a couple of months.”
Lynn Thompson, President of Thompson Sales Company
How Long Will the Shortage Last?
The current timeline of the chip shortage is uncertain and with four months remaining in 2021, this “bottleneck in all manufacturing processes" (Detroit Free Press, 2021) could still be impacted by unforeseen factors. The shortage is expected to cost the “global automotive industry $110 billion in revenue in 2021” (CNBC, 2021). Wait times for new-built vehicles are ranging from extending into several months and the waiting period between ordering a chip and delivery is about 17 weeks (Bloomberg, 2021). Some automakers are continuing to assemble their vehicles without high-end features like navigation, or with incomplete fuel control systems, and plan to have their vehicles refitted once there are chips available (BNN Bloomberg, 2021). However, this is not a long-term solution as automakers will still be unable to produce cars with chips until “the first half of next year potentially,” (Tech Republic, 2021) as it takes up to three months for chips to be made and several more months before being integrated into a vehicle with the current extended wait times (Time Magazine, 2021). With chipless cars waiting for completion being the new norm, it can be expected that the boom in the used vehicle market will continue through to the new year. Curbie is no exception to the chain reaction caused by the boom, but we continue to do our best to provide you with exceptional vehicles at great prices.
"It is frustrating but this is something we can't control…
We'll just do the best we can.”
Lynn Thompson, President of Thompson Sales Company