Has the Worst of the Automotive Inventory Shortage Passed?

The COVID-19 pandemic and global semiconductor shortage got things started by bringing an automotive inventory shortage to the market.

Has the worst of this time passed us by? The spiraling impact of these events that began the current decade caused many new and used vehicle prices to skyrocket, bringing us to a place where we wonder when things will get back to normal. While the shortage of parts and semiconductor chips isn’t nearly as bad as it was in 2021, we’re not out of the woods yet.

How long until the car shortage is over?

Production levels have begun to normalize, but pre-pandemic production numbers aren’t expected to be reached until the second half of 2023. While we might finally return to a world with full dealership lots and affordable used car prices, most new car prices are expected to continue to climb. The movement toward electric vehicles creates higher demand, which results in higher prices for vehicles that shouldn’t cost as much as they do. Of course, we can’t expect car prices to return to pre-pandemic levels because of recent advancements in technology and safety features which are included in most new models.

Has the automotive inventory shortage begun to pass?

Semiconductor chips aren’t the only part of new cars that face a shortage. Since the pandemic, the supply chain shortages have gotten worse with various disruptions caused by global events. Thankfully, these events aren’t continuing to cause shortages, and we should see improvements in inventory levels over the course of 2023. The higher prices of new models create a cooling of new vehicle demand with many consumers postponing their purchases until these prices return to a much more reasonable level. With profits and sales volumes slowing, vehicles spend more time on dealership lots, creating a normalization of the auto market.

Do some brands have a current inventory surplus?

Some brands do have several models on their car lots to offer customers, while others are challenged at keeping popular vehicles on their lots. The luxury segment is more popular than ever, and visiting Lexus, Land Rover, BMW, and Acura dealers could result in low inventory levels. If you’re looking for a luxury crossover, you might have to visit several locations or ask the dealer to locate one at a nearby dealer where you can pick up the model of your choosing.

Unfortunately, the low inventory levels at dealerships are not limited to the luxury area of the market. If you visit dealership brands of Kia, Toyota, Honda, and Subaru, you’ll find low inventory levels, which might make it hard to find the vehicle you want to drive. Models with the lowest inventory levels include the Kia Sportage, Toyota Corolla, Honda CR-V, and Toyota 4Runner. All of these models have less than 22 days worth of supply, with the brands mentioned offering an average of 30 days of supply, which is still a shortage. This makes it difficult to find one of the more popular vehicles when you’re shopping for your next ride.

Does it make sense to buy a car now or wait to make your purchase?

Reasons to buy a car now

Trade-In Value

If you think that you should buy a car now, you’ll want to consider some of the benefits offered compared to waiting. When you’ve got a vehicle you want to trade for your next ride, the longer you hold onto it, the less its value will be. Additionally, as long as there’s an automotive inventory shortage, used car prices are higher than ever. This means most dealers offer higher-than-average values for trade-in models. If you wait, your trade could end up much lower than you expect.

New Cars Prices Increase

As mentioned, even if inventory levels return to normal, that doesn’t guarantee that new car prices will drop. We expect used car prices to drop as the market normalizes, but new cars are different. Some models, mostly electric vehicles, are in extremely high demand right now, which means these vehicles are more expensive than they might be if there were enough electric vehicles to meet the market demand. Until that time, expect EVS to remain more expensive than their gas-powered counterparts, which brings up a separate inventory issue.

Current Interest Rates are Rising<

Along with the increased prices, interest rates are also much higher than ever before. The average interest rate for a new car loan has gone up significantly from the previous year. Unfortunately, these interest rates are expected to continue to increase, which means you’ll pay more if you wait to purchase your next vehicle. These interest rates might come back down when the automotive inventory shortage has passed, but there’s no guarantee of that either. You could spend thousands of dollars more over the life of a car loan if you wait to buy your next car.

Reasons to wait to buy your next car

Used Car Prices Dropping

The time of paying more for used cars than ever before is coming to a head and could eventually pass in the near future. As more new cars are available, many trades will take place and fill the used car market once again. During 2021, many used vehicles cost more than when they were new, but we’ve already seen the average used car price come back down. Once inventory levels normalize, we can expect used cars to be much more affordable.

Buying New Cars Will be Easier

If you wait for the automotive inventory shortage to pass before buying a new car, you’ll likely see vehicles return to sticker prices and some offered with rebates and discounts that dealers aren’t offering right now. In fact, some dealers don’t honor employee pricing for those employees of the car company; essentially removing one of the benefits these workers have negotiated into their contracts. Once inventory levels return to normal, car buying could return to the process we’re used to, and prices might return to match the MSRP listed on the vehicle’s sticker.

We might be close to seeing the end of the automotive inventory shortage, but we’re not there yet. Are you planning to buy a new, or used vehicle now or will you wait until the shortage is officially over?