Car Shopping Tips During the Global Microchip Shortage

What you need to know

• Dealer inventory is low and prices are high due to a global semiconductor chipset shortage as well as spiking consumer demand.

• New car inventory is down to just a third of where it normally is this time of year, but it's also getting increasingly difficult to measure since inventory is going so quickly.

• Dealerships are less likely to discount their vehicles, and average transaction prices continue to be at record highs.

• Used vehicle values have shot up due to limited new inventory and increased shopper interest in quality used vehicles.

A global shortage in semiconductor chips, which are essential components of a modern vehicle, has slowed automotive production and caused an inventory shortage in new cars. Together with rising consumer demand, this has led to an increase in prices at dealerships, where the average new vehicle transaction price in June was $42,331, an increase of 8.6% year over year, according to Edmunds data. And the percentage of buyers paying above sticker price has risen more than 50% since 2020.

"Inventory levels likely won't go back to normal until next year, if they ever do at all," said Jessica Caldwell, executive director of insights at Edmunds. "It seems as if automakers are rethinking their production and inventory strategies, given that they have sold fewer vehicles but at higher prices, so inventory may look different in the near future."

While the chip shortage only directly affects new cars, it has also supercharged demand for used cars because customers either want less expensive alternatives or simply can't find what they're looking for in new inventory. Dealerships have little incentive to discount any of their cars as long as demand exceeds supply across the board. As a result, the average transaction price for a used vehicle in June was $26,457, which is up 27% year over year.

"At the rate we're going, it's going to be a lot tougher for car shoppers to find exactly what they want this year," said Ivan Drury, Edmunds' senior manager of insights. "You might pay above list price and drive a bit farther to get the car that you want, but if you know you're going to need a new vehicle in the next few months, definitely pull the trigger now before this situation gets any worse."

It's a tough shopping climate, for sure, but if you need a car soon, don't despair. Our experts have some suggestions about how you can navigate the current market and set realistic expectations for what a good deal might look like.

Shopping tips

• Recalibrate your expectations for discounts. The market has changed. That killer deal you got a few years ago won't be the same today. Don't be surprised if a dealership only discounts the vehicle by a few hundred dollars, holds the line on the sticker price, or even sets a price above MSRP (manufacturer's suggested retail price).




• Research market prices. How do you know what a good deal looks like in today's market? Take a look at comparable vehicles in your area to see what the going rate is. If you're shopping for a car on Edmunds, many of the vehicles we list have a price rating of fair, good or great, along with a graph to show what those prices might look like.




• Be on the lookout for dealer markups. It is increasingly common in this market to see a vehicle marked up with a price that's higher than the MSRP on the window sticker. This "market adjustment" can range anywhere from a few thousand dollars to upwards of $30,000 on rare and in-demand vehicles. You can ask to have the fees waived, but if you get the cold shoulder, it might be best to take your business elsewhere.




• Expand your search. Not finding a good selection in your area? Take a look at the dealerships in the next town or county over. It can make the difference in getting the car you want or getting a better deal. Some might be tempted to cross state lines for a car purchase. Make sure to research the local sales tax laws and emissions requirements and ask how to handle the temporary registration when buying an out-of-state vehicle.




• Don't get too set on one color or car. Inventory is limited these days. Have backup picks in colors and even a range of different models to give yourself the most flexibility.




• Consider another brand. If you're having trouble locating a certain model, consider its equivalent at another brand. It may not be one you're familiar with, so make sure to research it well, but you could potentially have more to choose from.




• Try a sedan in place of an SUV or truck. Trucks and SUVs are by far the most popular vehicles today, which means that they will be more expensive and harder to find. Modern sedans offer more space than ever and, in theory, should be easier to find on a dealer lot.




• Shopping new? Consider used. Shopping used? Consider new! In today's market, it's best not to leave any stone unturned. There may be situations in which a new car might be a better value than a used car, or vice versa. Make sure to explore all your new car or used car options.




• Get the most you can for your trade-in. One bright spot for those with a vehicle to trade in is that values are at an all-time high. This can help soften the blow from the higher selling prices. Make sure to appraise your vehicle on Edmunds to help you get its maximum value.




• Consider a lease as a temporary solution. Are you brand-loyal but can't seem to find a good car from your automaker of choice? Consider leasing from another brand that might have a better selection. We're not asking you to permanently change your preferences, which is why leasing works so well in this scenario. It gives you an easy out in two to three years when you want to return to your brand.




• Wait it out. Edmunds analysts estimate that vehicle shortages might last well into 2022. If you're not in an immediate rush to buy a car — perhaps you're working from home — you could give the market a few months to cool down. In the meantime, if you have a car that you're not driving much, you might want to take advantage of the seller's market for used cars by trading your vehicle in for cash now while the market is hot.

Edmunds says

Although shopping for a car has rarely been as challenging as it is right now, there are still a number of strategies you can employ to make the best of it. Keep our tips in mind and you might be pleasantly surprised by where you end up.