Buying a Car During the Microchip Shortage

Five Rules to Save You from Paying Sticker Price +

Most folks aren’t even sure what a “microchip” is. The Oxford dictionary defines a microchip as “A tiny wafer of semiconducting material used to make an integrated circuit”. Unless you’re a physicist, this probably doesn’t help you understand any better. In lay terms, a microchip is a fundamental part of all electronics and computers manufactured today. They replaced vacuum tubes which, if you’re old enough to remember the early and middle of the 20th century, were used in radios, TV sets and those first very large computers. My first job, after receiving my Master’s degree from Purdue University in 1964, was with Westinghouse Electric Corp working with engineers to design microchips/integrated circuits into everything that previously had used vacuum tubes. Microchips revolutionized the world because all electronic devices, especially computers, became much smaller, faster, and inexpensive.

Every vehicle manufactured today is a “computer on wheels” and the auto industry uses more microchips than any other industry. The car you’re driving today has far more computing power than Apollo 11, the first rocket ship to fly to the moon in 1969, carrying Neil Armstrong and Buzz Aldrin. This is the biggest reason the world-side auto industry is experiencing the most severe inventory shortage in history. Coupled with unprecedented demand driven by consumers clamoring to buy, lease, and rent new and used vehicles, prices have SKYROCKETED for all new and used cars. About TWO-THIRDS of all cars sold last month were at, or over, full sticker price.

Here are my suggestions if you’re considering buying a new or use car today:

• Don’t buy, lease, or rent a car today unless you must or don’t mind paying a lot more than you would in a few months. Near the end of this year, prices will drop considerably when inventories rise as the microchip shortage is mitigated.

• If you’re thinking of buying a new car, check the price of an equivalent used one of the same make and model. Also, check the price of an equivalent new car, if you’re thinking of buying a used one. The acute inventory shortage has created crazy pricing by dealers with the used version of a new car selling for nearly the same as a new one; and sometimes vis versa.

• If you’re currently leasing a car, you have anoption to purchase it the end of the lease, or before. In a “normal” market, this wouldn’t be as important, but with used car prices skyrocketing this can be a financial windfall for you. You may be able to exercise your purchase option and buy your leased car at a bargain-basement price. You can keep this vehicle and drive for another 3 or more years or “flip it”. This means you buy your car back from the leasing company and then simultaneously sell it back to the highest bidder. It may be your dealer, CarMax, www.WeBuyAnyCar.com, www.Vroom.com, orwww.Carvana.com. Do not let the dealer that leased you the car keep your leased car without knowing how much below current market value it is. He will take your windfall and keep it for extra profit for himself while selling or leasing you a new car.

• If you must buy a new car today, take advantage of a reputable third-party car buying sources likewww.CostcoAuto.com, www.TrueCar.com, orwww.ConsumerReports.com. You’ll still pay a relatively higher price than 4 months from now, but you won’t pay a much higher price than everybody else does.

• If you prefer to buy directly from the dealer, be sure to get at least three competitive bids on the exact same vehicle (same MSRP). Also get at least 3 bids on your trade-in, which will greatly mitigate the very high price you’ll pay for the new car.