How the Semiconductor Shortage is bringing up Used Car Prices

Have recently checked on used car prices? If you haven't done so, I suggest you take some time to take a look at these. Used car prices have skyrocketed over the past 18 months and will probably continue to do so over the next few ones. I always remember the case of my friend who bought a 2009 Toyota RAV4 with about 120,000km over 5 years ago for $11,000 and recently sold it for $9,500 with over 220,000km. Just a "$1,500" depreciation 5 years and 100,000km later.

Semiconductor Shortage

The origin of all this situation comes from the semiconductor shortage generated by the overwhelming demand for computers, laptops, gaming consoles, vehicles, home appliances and electronics due to the COVID19 impact on our entire civilization habits. What was a "near enough" manufacturing capacity, suddenly became a fraction of the world's demand.

Additionally, the adoption of electric vehicles has also increased the amount of semiconductors needed for the manufacturing of a single unit. A Ford Europe executive detailed to CNBC that:

The shortage is thought to have been exacerbated by the move to electric vehicles. For example, a Ford Focus typically uses roughly 300 chips, whereas one of Ford’s new electric vehicles can have up to 3,000 chips.

While vehicle manufacturers estimate the crisis should extend further into early 2022, some manufacturers such as Toyota have reduced their capacity in the U.S. to be 40% of what it was back in September 2020.

Major companies such as Intel, TSMC and Bosch have initiated, over the past couple of years, the development of new manufacturing plants to catch up with the projected demand. Even with about a 17% increase of production projected to the end of 2021, there is still a lot to catch up with.

The Used Car "Case"

Used cars have become then the "major" alternative on the market. While the new vehicle production is so slow and some delivery wait lines an take up to 8 months, used car prices continue to skyrocket month after month. If you need a car, you need one. You will be willing to pay for it, even if it is the only and most expensive alternative right now.

Won't be surprised if you find a 30,000km car at the same price of a brand new one, EVEN before factoring in interest rates for used cars.

If you are in a rush, shop for a good deal in our lease transfer marketplace. Prices there are locked in to the past, so there will be where you'll find the best used car deals out there.

About the author

Jorge Diaz is a passionate car lover, winter driver & Software Engineer. For the last 10 years, he has built Online Solutions used by more than 5,000 companies across the globe. He founded LeaseCosts in 2016 with the purpose of simplifying and helping Canadians to better understand the complex market of car leasing in Canada. You can connect with Jorge at Leantrepreneurship.com or send him a direct message.