The car market keeps getting worse for buyers. Things may not get better until 2023, analysts say.

A car dealership lot with Ram pickup trucks.
A car dealership lot with Ram pickup trucks.

  • In September, wholesale used-car prices surged and vehicles sold faster than they did in August.
  • A shortage of new cars is driving secondhand prices up.
  • The worldwide supply of cars may not recover until 2023, industry analysts say.

Looking to buy a secondhand set of wheels for a reasonable price? You may want to wait a couple of years.

Used-car values have surged during the pandemic as a chip shortage reduced the flow of new vehicles off of production lines to a trickle. It looked like prices were starting to come down after hitting a peak this spring, but now that relief appears short-lived.

According to Manheim Auctions, the largest wholesaler of used vehicles, wholesale used-vehicle prices hit a record high in September of 27.1% above the prices from the same month last year. Retail prices tend to lag slightly behind wholesale, so consumers will likely feel the price hikes soon, too.

Even amid the inflated prices, demand for vehicles is high. The sales-conversion rate jumped to 65% in September, according to Cox Automotive, indicating that buyers are getting more aggressive. It was 52% in September 2019.

Used cars are selling extraordinarily quickly, and buyers will have to act fast if they want to get their hands on a particularly popular model, according to a new study from iSeeCars published Tuesday.

In September, the average used vehicle sold 32.8 days after being listed for sale online, according to iSeeCars. That’s compared with 34.6 days on average in August. In the months preceding March 2020, the average was 68.9 days.

Some of the fastest-selling used vehicles were the Tesla Model 3 (on the market 16 days on average), the Mitsubishi Outlander (19.7 days), and the Toyota Prius (20.7 days).

For months, industry leaders and analysts, including Intel’s CEO, have said that the chip shortage could drag on until 2023.

In light of the worsening chip crisis, forecaster IHS Markit projected in September that global vehicle production will be severely diminished through the rest of 2021 and throughout 2022. Production will also take a hit in early 2023, the firm forecasts.

That means the shortage of new vehicles that’s driving up prices will be with us for quite a while.

IHS Markit forecasted in October that the global supply of cars will start to stabilize in the second half of 2022 and begin to recover in the first half of 2023, Automotive News reported.

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Apple will likely have to cut its iPhone 13 production goals for 2021 due to the global chip shortage

Tim Cook - iphone 13
  • Apple is likely to lower its iPhone 13 production targets for 2021, Bloomberg reported.
  • The smartphone maker may aim for 10 million fewer units than originally planned.
  • The slashed production goals are due to the chip shortage impacting global supply chains.

Apple will likely have to cut its 2021 production targets for the iPhone 13 by as many as 10 million units due to the ongoing chip shortage, Bloomberg reported Tuesday.

Apple originally planned to make 90 million units of its newest smartphone in Q4 2021, but has told manufacturing partners it’s now aiming lower because supply-chain partners Broadcom and Texas Instruments may not be able to deliver enough components for that many devices, according to Bloomberg, citing people with knowledge of the matter.

Apple did not respond to a request for comment on this story.

The chip shortage has impacted supply chains around the world, hitting the tech industry, automakers, and other tech-enabled products. It’s expected to cost companies hundreds of billions of dollars in 2021, and experts say it could last another two years.

Insider’s Hillary Hoffower, Ben Winck, and Andy Kiersz recently reported that much of the shortage can be traced back to the US-China trade war.

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The chip crisis is helping automakers and dealers do something they’ve been wanted for decades: quit offering incentives and deals

Mustang Mach E GT Performance Edition 03
Mustang Mach-E GT Performance Edition.

  • With fewer new vehicles to sell, car companies are getting more money for the ones they make.
  • One consultant told Bloomberg that US automakers are receiving up to $10,000 more on trucks and SUVs.
  • Ford’s CEO previously said the pricing power is “breathtaking” and is changing production strategy.

The most elementary tenet of economics is the relationship between supply, demand, and prices. If there’s suddenly less of something that a lot of people want, it’s going to get more expensive.

At the same time, having competition in the marketplace encourages suppliers to increase supply and lower prices in order to win a larger share of buyers in the market.

Indeed, that is the game that Ford, General Motors, and the predecessors of Stellantis have been locked in for decades, with each making as many cars as they could hope to sell and cutting prices with incentives and deals to attract customers.

This year’s shortage of semiconductor chips turned all of that on its head.

Faced with very real constraints on this necessary component, automakers were forced to make fewer vehicles with the chips they did have. Naturally they chose to prioritize those models that had the highest demand and made them the most money.

At the same time, the reduction in the supply from all brands meant that dealers could make a sale without the traditional haggling over the vehicle’s sticker price. The result has been a boon for automakers.

Mark Wakefield, a consultant with AlixPartners in Detroit, told Bloomberg that US car companies are now making $3,000 more per car than average, and up to $10,000 more on certain pickups and SUVs.

One dealer who sells upgraded pickups in Ohio told Morning Brew that his dealership recently closed a deal in 52 minutes that would have taken four hours before the chip shortage.

“The surprising part is the average selling price on those trucks is close to $100,000, and the consumer demand has still been sky-high,” the dealer said.

Ford CEO Jim Farley said in June this new pricing power was “breathtaking” and indicated that the company wouldn’t be returning to the days of guessing over how many cars it should produce and then marking them down until they sell. GM CEO Mary Barra has also said that customer orders will play a larger role in her company’s production strategy.

Kevin Tynan, an autos analyst for Bloomberg, told Insider earlier this year that the industry has been trying to get off of the incentives and discounting model for decades.

“They don’t totally hate this,” he said, referring to the shortages. “Moving forward you’re probably going to get more an industry more like what we’re seeing now, where supply is a little bit more managed and incentives are not as aggressive as they’ve been.”

In order for inventory to remain low and prices high after the the chip-supply problems are resolved, the automakers will be bound up in a version of one of economists’ favorite games, “The Prisoners Dilemma,” forced to cooperate, Wakefield says.

Once that ends, the first company to sacrifice profits to gain market share will likely cause others to follow suit and they’ll be right back where they were before the pandemic. (As a reminder, Federal law prohibits the companies from organizing to coordinate their strategies.)

Tynan expects the better margins automakers are enjoying this year will convince them to leave the old model in the past.

That may be good news for automakers and investors, but that also means consumers can expect to continue to see fewer options, higher prices, and a tighter used vehicle market going forward.

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Shortages and high prices have upended car buying. Here’s how to navigate a purchase in these unprecedented times, according to experts.

Cars sit outside a used car dealership with spray paint on the windows advertising the vehicles.
Some used cars are selling for as much as their new counterparts.

  • Thanks to massive shortages and high demand, buying a car now is trickier than ever.
  • Shoppers should be extra flexible on just about every aspect of buying a car, experts told Insider.
  • There are also pros to leasing a vehicle or delaying a purchase until this all blows over.

If you’ve been following the news, shopping for a car probably feels incredibly daunting right about now.

Between a computer chip shortage, booming demand for cars, and a rat’s nest of other pandemic-related factors, vehicles are in short supply nationwide. Practically all cars – from the latest models to decade-old clunkers – cost significantly more than they did a year and a half ago.

It all means that the decisions surrounding buying a car have become more challenging than ever before. Successfully navigating this difficult market means resetting your expectations, expanding the options you’ll consider, and possibly even deciding not to buy a car at all, experts told Insider.

Flexibility is key

There’s a good chance you won’t find exactly what you’re looking for at precisely the price point you’re used to. Being open to a variety of brands, models, and options is the way to go in today’s market, Brian Moody, Autotrader’s executive editor, told Insider.

“The person who’s probably going to do the worst in terms of finding what they want is the person who’s very rigid,” he said.

People looking to buy secondhand should broaden their search to include older models than they’d normally consider, says Benjamin Preston, an automotive reporter at Consumer Reports. On the new side of things, being open to less-popular vehicle types like sedans, hatchbacks, and smaller SUVs could pay off, he added.

Prepare to pay up

Whether you’re shopping new or used, expect to fork over much more than you’re accustomed to, Ivan Drury, senior manager of insights at Edmunds, told Insider. New vehicles are selling at or above MSRP. And used cars, even older ones, are worth thousands more than before the pandemic. Some lightly-used vehicles are selling for as much or more than their new counterparts.

And don’t go in expecting to negotiate thousands off of a vehicle’s sticker price, Drury said. While that may have worked before, right now there are way more customers than cars – and dealers know that.

If you decide to stomach the astronomical used-car prices, be sure to keep that vehicle for the long haul, Drury said. One of the worst things you can do for your wallet right now is to buy a vehicle at today’s prices and dump it in a year or two.

Leasing may be your best friend

If you’re having trouble finding what you’re looking for or can’t afford the eye-watering price tags of some in-demand models, consider leasing until it all blows over, Drury said.

“Just borrow something you’re okay with instead of buying something you don’t love,” he says.

Leasing costs less per month than paying off a car loan, but the trade-off is you have to return the vehicle after the two- or three-year lease period. People who go this route should check automaker websites for lease specials on certain models and trims, Drury said. Customers afraid of exceeding the mileage limit on a lease should see if they can add miles at the beginning of their contract.

“Bottom-line shoppers” who are leasing as a last resort should hunt for vehicles with the lowest monthly cost and the lowest up-front payment, Moody said.

Work with what you’ve got

With prices the way they are, investing in an existing vehicle could make more financial sense than it did just a few months ago, Preston, of Consumer Reports, said. Even expensive repairs may be worth it in the long run if they allow you to delay a purchase and escape today’s chaotic market.

“Our advice is if you can wait, that’s probably your best bet,” Preston said.

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Trying to buy a car right now? You might be better off waiting.

A car dealership lot with Ram pickup trucks.
A car dealership lot with Ram pickup trucks.

  • Buying a new car in this inflated market is tricky but not impossible, Consumer Reports says.
  • The best bet for most consumers is to delay buying a car.
  • That means forking over extra for repairs or buying out a lease, according to the nonprofit outlet.
  • See more stories on Insider’s business page.

If you’ve browsed an online car marketplace or read the news over the last 18 months or so, you’re probably aware that car prices are completely and utterly out of control.

Values plummeted early on in the pandemic as economic uncertainty and the fear of infection kept buyers at home. But since then, demand has exploded and prices for both new and used cars have surged higher and higher.

Several new vehicles are selling for above MSRP and used models on the wholesale market are going for over 40% more than they would have in February 2020, according to Manheim Auctions. It’s gotten so bad that nearly half of people interested in buying a car are calling it quits for now and are waiting for prices to come down, a recent Kelley Blue Book survey suggests.

That’s probably a good idea, according to Consumer Reports.

“Our advice is if you can wait, that’s probably your best bet,” Ben Preston, an automotive reporter at the nonprofit outlet, told Insider.

With car prices at unprecedented levels and set to stay there for the foreseeable future, Preston recommends that consumers hang on to their existing vehicles rather than hoping for a deal. The global shortage of computer chips that’s at the heart of the ridiculous pricing doesn’t seem like it will resolve itself anytime soon. That means new cars will be in short supply and used ones will be in high demand for months – possibly years – to come.

An expensive repair that would’ve forced someone to ditch their car for a new one 18 months ago could make financial sense nowadays, Preston says. Replacing an old vehicle is pricier than ever, so a $3,000-$4,000 transmission, for instance, could make sense depending on how long the owner plans to keep driving that vehicle. If coming up with the cash is an issue, owners can shop around for repair shops that offer short-term financing.

The same goes for leases.

If you are nearing the end of a lease, it could be a good idea to hang on to the vehicle by buying it out, Preston says. Lease agreements stipulate a price that the lessee can buy the vehicle for at the end of the two or three-year term based on its projected residual value. Because nobody could have predicted how values would spike in 2020 and 2021, buying out a lease could be a good way to secure a vehicle at below-market prices.

Shoppers who can’t wait should look for less popular models and be prepared to make some sacrifices on age and options, Preston says.

“It’s going to be tricky to buy a car right now,” he said. “It’s not impossible.”

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Volkswagen’s truck unit says the chip crisis is so bad that it’s stealing parts from completed trucks to finish other ones

A MAN truck built by Traton.
A MAN truck built by Traton.

  • Traton Group, a Volkswagen subsidiary, is taking extreme measures to finish building trucks.
  • It’s taking parts from finished but unsold vehicles and putting them in unfinished, sold ones.
  • A devastating shortage of computer chips has upended vehicle production for months.
  • See more stories on Insider’s business page.

The worldwide shortage of computer chips has forced automakers to do some really odd stuff to keep as many vehicles rolling off of production lines as possible.

The latest weirdness: a Volkswagen trucking subsidiary is stealing parts from finished but unsold vehicles and sticking them in trucks with waiting customers. It’s the latest indication that the chip crisis that has bogged down auto production and sent car prices skyrocketing is far from over.

Traton Group, which builds trucks under the Scania, Navistar, MAN, and Volkswagen brands, said Wednesday that shortages of semiconductor chips and other components are having a “growing impact” on production volumes. The deepening supply-chain issues pushed Traton to start swiping control units from completed trucks.

The company attributed the worsening situation to a recent Covid-19 outbreak in Malaysia, where much of the auto industry’s chip production takes place. But it also said that “the shortage of numerous other products” will deal a blow to sales in September and still be felt in 2022.

Amid the lack of chips, carmakers have resorted to shutting down production lines and nixing certain features from new vehicles. Navigation systems, screens, and wireless phone chargers have all gotten the ax as automakers funneled available chips to more crucial vehicle components, Bloomberg reported in May. The huge decline in new-vehicle inventory has pushed new and used-car values upward for much of the pandemic.

The shortage and its effects – particularly on used-car prices – are still getting worse, JPMorgan analysts said in a Monday note. In the wake of the Malaysian outbreak, forecaster IHS Markit on Thursday said it expected worldwide light-vehicle production to fall by 6.2% in 2021 and by 9.3% in 2022, the single largest adjustment it has made throughout the chip crisis.

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Chip makers like Nvidia are set to soar as semiconductor sales to reach $544 billion in 2021, Bank of America says

Semiconductor manufacturing.
Nvidia is a top stock pick for Bank of America.

  • Bank of America on Friday raised its 2021 outlook for sales growth in the semiconductor industry to 24% from 21%.
  • Semiconductor companies have newfound pricing power in the ongoing global chip shortage.
  • Nvidia, ON Semiconductor and KLA-Tencor are among the investment bank’s top stock picks in the sector.
  • See more stories on Insider’s business page.

Bank of America bumped up its sales outlook for the semiconductor industry as it sees growing demand for chips that make computers and cars run, and named Nvidia and auto chip supplier ON Semiconductor among its top stock picks heading into the final quarter of 2021.

The persistent global chip shortage that has dogged companies ranging from automakers, to video game publishers, to consumer electronics producers, has contributed to strengthening sales for chip companies. BofA expects above-trend growth to last through next year and now projects total industry sales in 2021 to increase by 24% to $544 billion, up from its previous view for an increase of 21%.

“We remain firmly in the stronger-for-longer camp for semis given their critical role in the rapidly digitizing global economy and the newfound pricing power and supply discipline of this remarkably profitable industry operating with a very lean supply chain,” said analysts led by Vivek Arya in a Friday research note.

BofA’s semiconductor analysts outlined their fourth-quarter playbook before investors headed into the fourth quarter. It said between 2010 and 2020, the fourth and first quarters have been the two best quarters to own semiconductor stocks as the PHLX Semiconductor Sector has outperformed the benchmark S&P 500.

There are three hot spots in the industry: computing, which includes cloud services and AI, gaming and networking; cars; and capex, or capital spending by businesses and the government.

In the computing group, BofA raised its price target on Nvidia to $275 from $260 and said the graphics-cards maker is a top pick along with AMD and Marvell. In the car group, it increased its price target on top pick ON Semiconductor to $60 from $55.

The investment bank called KLA-Tencor its top pick in the capex segment and raised its price target by 6% to $450 from $425. The stock traded around $369 on Friday.

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GM is following rival carmakers by shutting down some production lines because of the global semiconductor shortage

Auto worker, factory, General Motors, assembly line
General Motors is cutting production in plants across North America due to the semiconductor shortage.

  • General Motors said Thursday that it is cutting production in eight plants across North America.
  • The company is adding downtime for plants across the continent for approximately two weeks.
  • The global chip shortage has been plaguing the automotive industry for months.
  • See more stories on Insider’s business page.

General Motors is cutting production in plants across North America due to the semiconductor shortage that has been plaguing the automotive industry for months.

As the chip shortage continues, General Motors said in a press release Thursday that it will be adding downtime at eight of its plants across Mexico, the US, and Canada for an average of two weeks, but all plants are scheduled to resume production by the end of September.

“These most recent scheduling adjustments are being driven by the continued parts shortages caused by semiconductor supply constraints from international markets experiencing COVID 19-related restrictions,” the company said in a statement. “During the downtime, we will repair and ship unfinished vehicles from many impacted plants, including Fort Wayne and Silao, to dealers to help meet the strong customer demand for our products.”

GM added: “Although the situation remains complex and very fluid, we remain confident in our team’s ability to continue finding creative solutions to minimize the impact on our highest-demand and capacity-constrained vehicles.”

The global chip shortage isn’t expected to get better for another two years, and for the automotive industry, supplies are limited.

Tesla CEO Elon Musk compared the chip shortage to people panic buying toilet paper at the beginning of the pandemic. “Never seen anything like it,” Musk tweeted. “Fear of running out is causing every company to overorder – like the toilet paper shortage, but at epic scale.”

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Nio drops after cutting its 3rd-quarter vehicle-delivery outlook due to supply-chain pressure

Nio
  • Nio shares fell Wednesday after the electric-vehicle maker reduced its third-quarter delivery guidance.
  • The Chinese automaker cited “continued uncertainty and volatility of semiconductor supply” as a reason for cutting its outlook.
  • Nio expects to deliver 22,500 to 23,500 vehicles in the third quarter, down from its previous range of 23,000 to 25,000 units.
  • See more stories on Insider’s business page.

Nio shares declined as much as 5% on Wednesday after the Chinese electric-vehicle maker lowered its third-quarter outlook for deliveries because of semiconductor supply constraints.

The company now expects to deliver 22,500 to 23,500 vehicles in the third quarter, down from its previous outlook of 23,000 to 25,000 units.

The global automotive industry has been plagued by a chip shortage and supply constraints for more than a year, prompting other car manufacturers including Toyota Motor and Ford Motor to reduce production at their factories.

Nio also said Wednesday it delivered 5,880 vehicles in August, representing year-over-year growth of 48.3%.

“While the company’s new order reached an all-time high in August driven by the increasing demand, the vehicle production, especially the manufacturing of the ES6 and EC6, was materially disrupted by supply chain constraints resulting from the COVID-19 pandemic in certain areas in China and Malaysia,” it said.

After seeing torrid gains to start 2021, Nio’s stock is now down nearly 20% year-to-date.

nio stock chart 9-1-21
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Used car prices are finally cooling off, but it still won’t be easy to buy one

car dealer
The old-fashioned way to buy a car.

  • Used vehicle prices went up just 0.2% last month after three months of record increases.
  • The price is still up more than 40% over last year, US government data show.
  • Actual relief may be a long way off due to supply challenges in the new car market.
  • See more stories on Insider’s business page.

The used vehicle market is finally showing signs of leveling off after three consecutive months of record price increases, data from the US government’s latest monthly inflation report show.

The average price for used cars and trucks ticked up just 0.2% in July, barely moving after June’s 10.5% spike was responsible for a third of the overall rise in inflation.

But even though the picture didn’t get worse for car shoppers, it didn’t get any better either – and it might not improve for a while yet.

Read more: Hot EV startups like Rivian were already struggling to get cars to market – then the chip shortage hit. 4 top execs and industry experts tell us how they’re tackling the crisis.

Depending on who you ask, average used vehicle prices are still up nearly 42% over last year (according to the Feds), or 23.6% (according to the Manheim Index), which means that used Ford Escape SUV that might have gone for $17,000 will run now you between $21,000 and $25,000.

That leaves a lot of room before prices return to familiar territory, and there are a few reasons that could take some time.

For starters, one reason prices have softened is that fewer people bought used cars last month than normally do. Cox Automotive estimates sales were down about 15% in July from the same month last year.

In other words, it’s likely there was less competition between customers to drive prices up. When shoppers do return to dealers’ lots at normal levels, it’s not entirely clear where the inventory will come from since there’s no such thing as a used-car factory.

Normal used retail supply is typically around 44 days worth of inventory, meaning that dealers have enough cars in stock to sell for a month and a half. July ended with 39 days’ supply.

The problems in the new vehicle market continue to cause ripple effects, most notably from the lack of semiconductor chips needed to make modern cars go.

“This ‘two steps forward, one step back’ path toward increased semiconductor availability and light vehicle production is likely to limit the pace at which used vehicle prices decline,” JPMorgan autos analyst Ryan Brinkman wrote in a research note.

New vehicles meanwhile continued their price increases with another 1.7% bump last month for a year-over-year increase of 6.4%, according to the inflation report. Since all used vehicles begin their lives as new vehicles, those higher new prices are likely to get baked into their eventual cost.

Another (related) reason for the constrained supply is that rental companies like Avis and Hertz are hanging onto cars longer instead of selling them into the used market.

A decade ago, 30,000 miles on a rental car was considered high. Last year, the mileage averaged around 50,000. Last month, that number hit 88,000, according to Manheim. Plus, those units sold for 6% more this year than last year.

“Even in six months, you’re still going to be facing some type of slightly appreciated prices, just because there’s so much demand that’s going unfulfilled right now,” Ivan Drury, senior manager of insights at Edmunds, said,

New-car prices will have to come down before any real improvement will arrive in the used market, he said. Until then, buyers shouldn’t hold their breath.

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