Over the two months since Cars.com declared that the global microchip shortage made it a good time to shop for cars, predicting new-car shoppers were likely to find their choices decrease and prices increase, we’ve seen a lot of the first and some of the second. Various additional factors affecting supply and more robust than anticipated demand are putting a return to normalcy into question.
The microchip shortage began to diminish vehicle supply, but both that phenomenon and other disruptions in February and March have further stressed the supply side of the equation:
- Winter storms in Texas halted production of automotive seat foam and other plastics and shut down semiconductor plants.
- A fire at the Renesas semiconductor manufacturing plant in Naka, Japan, has affected supply to several automakers.
- The Suez Canal was blocked for six days, halting all commerce, including automotive parts shipments, though the extent of the effect on the U.S. market is unclear.
Meanwhile, demand has taken off, combining the typical ramp-up of the spring selling season with a softening of coronavirus pandemic restrictions. New-car sales returned to pre-COVID levels in March.
According to Cars.com data and reflecting a marketwide trend, new-car inventory dropped more than 15% since our initial report, almost all of it during March. Perhaps most revealing, affordable vehicles were depleted faster: Inventory of those priced at less than $25,000 was down roughly 19% month over month as of March 30. This seems to support reporting that automakers with limited resources are using them to build higher trim levels. Cars.com data suggests the increased equipment levels of available vehicles, not scarcity, has driven modest price increases at the retail level over the past two months, but there’s no denying that below-average inventories since the pandemic began more than a year ago have allowed new- and used-car prices to rise, carrying profit margins along with them. According to J.D. Power, incentives also have been falling and are now 20% lower than a year ago.
This party might soon be over, or at least overcrowded, because continuing supply constraints seem to be on a collision course with pent-up consumer demand.
By many accounts, automakers have been prioritizing more popular models like SUVs and pickup trucks while cutting production of less popular body styles and specific models. That’s not to say the industry’s bread and butter hasn’t already been affected, however. Ford recently announced further downtime for April at multiple North American assembly plants, including those that build the F-150 full-size pickup — the single bestselling nameplate in the U.S. market that was redesigned for 2021 and earned Cars.com’s Best Pickup Truck of 2021 award as well as our top award, Best of 2021. Both Ford and Ram have taken to partially assembling some pickups with the intention of completing them once chip supplies are restored. GM has taken a different approach by omitting a module from its full-size pickups that manages cylinder deactivation and recertifying the vehicles with the EPA to keep inventory flowing to dealerships — albeit with a 1-mpg decrease in efficiency.
Across the country, dealerships are reporting short inventories, and our data confirms that 2021 model reserves are shrinking when they should be growing.
Which Models Are Affected?
We listed in our initial article the models assembled in plants known to have incurred chip-related shutdowns, but we’ve ceased updating the list. The nameplates kept coming — so many that a list of unaffected models started to seem more logical — but ultimately there is no way to distinguish the effects of the microchip shortage from other factors, including the convenient excuse it might provide a manufacturer that’s simply managing inventory for a low-demand vehicle.
Is Now Still the Time to Shop?
To answer the question broadly, it appears that most models are affected on some level, and the consumer vehicle market is a single organism. When prices of new cars go up, it drives buyers to used cars, which in turn become scarcer and more expensive. Similarly, as choices become fewer for some models, shoppers will turn to what’s available. The challenges a future shopper faces depend on how quickly the microchip shortage is mitigated and how much competition there is in the form of other car buyers. This will sound a lot like what we said two months ago: It’s definitely not a great time to buy a new vehicle, but it could also get worse before it gets better.
For those car shoppers who need a vehicle now, here are a few things to consider:
- For the car you’re considering, keep an eye on inventory levels over a few days or week to get a sense of the supply in your area. If choices are limited or even somewhat limited, you’ll need to move fast to purchase that car.
- If you can’t find the car you’re looking for, you’ll want to widen your search radius.
- When supply is limited, incentives from automakers tend to dry up.
In the wake of the disruptions detailed above, analysts who predicted the market could recover by the second half of 2021 and possibly make up the lost production by year’s end are less optimistic. Business data firm IHS Markit now estimates the fourth quarter is the first opportunity for supply to keep up with demand, and the first quarter of 2022 for the automotive industry to begin making up the backlog.
More From Cars.com:
- Cars.com Buying Guide: How to Buy a Car
- Buying a Car During COVID-19: Car Deals & Advice
- Cars.com Car-Buying Tips
- More Car Advice
- New-Car Deals News
Editor’s note: This story was updated April 15, 2021, to reflect J.D. Power’s reported percentage drop in incentives year over year.
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