Chip Shortages Continue to Drive Up Vehicle Prices Worldwide
Walking onto a car lot these days feels like stepping into some alternate reality where inventory means five vehicles spread across an acre of asphalt. The chip shortage that started during pandemic lockdowns was supposed to be a temporary consequence of supply chain chaos, except here we are, years later, and semiconductor scarcity is still wreaking havoc on vehicle production and pricing. New cars are selling above sticker price, used cars cost nearly as much as new ones did three years ago, and waiting lists for certain models stretch six months or longer.
Modern Cars Are Computers on Wheels
A new vehicle can contain anywhere from 1,500 to 3,000 semiconductor chips that control everything from entertainment displays and navigation to less visible functions like fuel injection timing, brake sensors, and airbag deployment. These aren't sophisticated chips by tech industry standards. In fact, most are older-generation semiconductors that would seem primitive compared to what's in your smartphone.
That's actually part of the problem. Chip manufacturers have been investing heavily in cutting-edge production for high-margin products like processors for AI and consumer electronics. The automotive-grade chips, which need to withstand extreme temperatures and last for years, use older fabrication processes that aren't as profitable.
Toyota was forced to cut global production by 40% at various points over the past few years. Ford had to park thousands of nearly-finished F-150s waiting for chips to complete them. The situation improved somewhat through 2023 and 2024, yet we're still not back to normal production levels.
Prices Have Hit Absurd Levels
The average transaction price for a new vehicle in the United States reached over $48,000 in late 2023, according to data from Kelley Blue Book. That's roughly $10,000 higher than pre-pandemic levels. Some of this comes from manufacturers prioritizing high-margin luxury models due to limited chip supplies, yet a significant portion reflects pure supply-and-demand economics when inventory is scarce.
Used car prices have been even more volatile. At the peak of the shortage, used vehicles were appreciating rather than depreciating. People who bought new cars in 2019 could sell them in 2022 for nearly what they paid originally, sometimes more. That three-year-old Honda Accord became an investment vehicle by accident.
The Ripple Effects Keep Spreading
When you can't afford a new car, you buy used. When used cars cost too much, you keep your current vehicle longer. As a result, repair shops have been slammed with work as people squeeze extra years out of aging vehicles. The average age of cars on American roads hit 12.5 years in 2024, up from around 11.5 years before the pandemic.
Older vehicles are less fuel efficient, produce more emissions, and lack modern safety features. The fleet isn't turning over at the rate it should be for environmental or safety goals. Lower-income families, who disproportionately rely on used vehicles, are getting squeezed the hardest.
Public transit in many areas hasn't recovered to pre-pandemic service levels either, making personal vehicles even more essential. You end up with people trapped in a particularly expensive moment, needing cars to get to work yet unable to afford the cars they need.
Different Markets, Different Pain
The shortage hasn't hit everywhere equally. China's domestic automakers, which rely more heavily on Chinese chip manufacturers, faced fewer disruptions than Western brands dependent on Taiwanese and Korean semiconductor foundries. This gave Chinese EV makers like BYD a competitive advantage at a critical growth moment, allowing them to scale up production while competitors struggled.
European luxury brands that had invested in longer-term chip supply contracts weathered the storm better than mass-market manufacturers. Mercedes and BMW maintained relatively stable production compared to Ford and GM. The shortage exposed which companies had resilient supply chains versus which ones had optimized purely for efficiency at the cost of flexibility.
The Recovery Remains Uneven
Semiconductor production capacity has increased substantially. Taiwan Semiconductor Manufacturing Company and Samsung have opened new fabrication plants. Automakers have redesigned some systems to use fewer or more readily available chips. Supply chains are slowly normalizing, yet normal doesn't mean what it used to mean.
Lead times for certain automotive chips still run 26 weeks or longer. Manufacturers have learned to carry more inventory as a buffer, which ties up capital and working space. Some automakers are even considering building their own chip production capacity to avoid future disruptions, though that's a massive investment with uncertain returns.
The expectation that we'd simply snap back to 2019 pricing and availability was always naive. Markets don't work backwards. They find new equilibriums based on changed conditions, and those conditions have all shifted in ways that make cheap, abundant vehicles feel like a relic of a different era.
