# The Real Reason Why Car Prices Have Skyrocketed

Consumers could choose the make and model they wanted when the auto manufacturing and supply chain functioned perfectly before the covid-19 pandemic.


With an unprecedented global shortage of cars, buyers are signing up for waiting lists, and it can be months before they can get them.

That shortage has driven up prices on new car models and used cars prices. Large companies are making fewer cars because there are not enough semiconductors, an essential part of their production.

Added to this is the hunger for chips among technology companies that manufacture everything from household appliances, computers, and cell phones to video game consoles.

"The semiconductor industry is trying to catch up with demand but simply can't," says Susan Golicic, a professor at Colorado State University's School of Business in the United States.

Faced with a lack of chips, vehicle manufacturers have had to select which models go on the production line and which models don't, the [expert explains](https://youramazingcar.com/).

"Many companies are only producing the vehicles that make them the most profit," such as SUVs, trucks, or luxury cars.

"The situation is quite serious."

Willy Shih, a Harvard Business School professor, said that the shortage affects the entire manufacturing chain in the automotive industry. That is all the companies that manufacture parts.

"This affects the employment generated by all the businesses associated with making a car. So, the consequences have spread quickly."

In Japan, home to brands such as Toyota and Nissan, the parts shortage caused the sector's exports to drop 46% in September compared to a year earlier, a clear demonstration of the importance of the automotive industry to its economy.

"Automotive manufacturing is estimated to generate about 3% of global Gross Domestic Product (GDP)," says David Menachof, a professor in the Department of Operations Management and Information Technology at Florida Atlantic University's (FAU) College of Business.

### New and Used Car Prices Rise

"In the U.S., cars are selling even higher than the asking price because people are willing to offer more than the normal price," Menachof tells BBC Mundo.

And with not enough new products available on the market, demand for used vehicles has risen, pushing the average cost of a used car in the U.S. to more than US$25,000.

Notes Susan Golicic, the average value of a vehicle has been rising by about US$200 every month.

The same is happening in other parts of the world. Mexico, for example, is the world's fourth-largest exporter of cars and the seventh-largest producer.

### The Inflation That The United States Faces

The United States is facing the highest inflation in decades.

Currently, the year-on-year inflation rate in the U.S. stands at 9.1 percent as of June. As a result, various services and products have gradually increased in price, including the automotive sector.

Car prices, new and used, have soared over the past two years, causing buyers to shell out more money than they would pay under "normal" market conditions.

According to a recent study from CoPilot, the increase in prices in the automotive sector is the result of the rise in inflation rates, which has caused consumers to spend, on average, more than 10,000 dollars more than usual when purchasing a used car.

In addition to inflation, other critical factors for the increase in used car prices are the "shortage of inventory in the new market and consumer over-demand," as well as the fuel price.