Jackson used car dealer on inflation's impact

The cost of used cars and trucks has gone up 26.4% since October 2020, according to the most recent consumer price index (CPI) released Wednesday by the U.S. Bureau of Labor Statistics.

Kody Newkirk, owner of Car Smart used vehicle outlets in Jackson and Farmington, Missouri, said Friday the global shortage of semiconductor chips for new cars is a primary driver of the price spike.

"These (new) vehicles can't run without the chips (and) there are thousands and thousands of new cars on hundreds and hundreds of acres that can't by shipped out because keys can't be produced for them," said Newkirk, who opened Jackson's Car Smart in 2013. "It's a massive problem."

Rising prices on new vehicles have pushed many consumers toward used cars, making them scarcer and more expensive as well, analysts say. In other words, it's a seller's market.

Microchips

Almost every auto manufacturer has faced production delays and temporary shutdowns as they wait for the chips they need to finish building cars on the assembly line, according to Consumer Reports magazine.

Toyota, to cite but one example, said it built 60,000 fewer vehicles last month than originally planned.

Sam Abuelsamid, an analyst at Guidehouse Insights, which tracks the automotive industry, told the Detroit Free Press every car has at least two or three dozen microchips, which control everything from infotainment screens to fuel management and stability control.

Luxury vehicles and cars with high-tech equipment such as advanced safety systems and driver assistance features may have 100 or more processors onboard, he added.

COVID-19

The pandemic, according to Consumer Reports' October issue, is the main cause of the chip shortage. When automakers shut down factories last year — both to keep workers safe and to confront a steep drop in demand for new cars — they canceled orders for semiconductors.

Manufacturers sold more than 14 million vehicles in the U.S. in 2020, and more than 17 million the year before, creating a need for hundreds of billions of microchips annually.

Local impact

"Finding used cars is tough (and) we're seeing (used) vehicles now that are running anywhere from $5,000 to $10,000 higher than before COVID hit," said Newkirk, whose twin locations in Cape Girardeau and St. Francois, Missouri, counties cumulatively sell approximately 55 cars monthly.

The local car entrepreneur is not surprised by CPI data showing the steep jump in used vehicle prices.

"Here's a prime example of what's happening. I was watching a car auction the other day and there's a 2000 Ford Ranger extended cab, two-wheel drive, four cylinder automatic, 64,000 miles — nothing spectacular about the truck at all — which sold for $9,000. In the wholesale industry, that's a $3,500 vehicle all day, every day, good day or bad day. There's no book justifying that price," Newkirk said.

Impact on leasing

Newkirk, who said he has worked in the car business since the mid-1980s, said rental car companies drive the market, calling them "one of the largest consumers" of new cars.

"When the rental industry can't get new cars to replenish their inventory, they're forced to go in and buy used — and will pay whatever it takes to get them, unconcerned with book value, because they have to have them in their fleet," he said.

Analyst Abuelsamid said consumers should not expect the situation to change much anytime soon.

"It will take another one to two years before the industry can catch up with the demand," he said to investors.

"I've never experienced anything like this in my 34 years in the car business," Newkirk said on Friday.

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