Canada has seen numerous shortages during the pandemic, from toilet paper to gas. But no one could have predicted the situation to cover cars.
For Canadians wanting to buy a used car, there are currently fewer options and greater pricing. The scarcity is so severe that some used cars are worth as much as new ones. According to Canadian Black Book data, used car prices are approaching 20%, and prices are expected to rise further as new car availability diminishes and people switch to used vehicles.
What Are the Causes of the Car Shortage in Canada?
The scarcity of semiconductors, a small but important computer chip needed in the production of newer vehicles, is mostly to blame. The second factor is industry shutting down as a result of the pandemic.
The semiconductor shortage was caused by an increase in demand for electronic devices as a result of the pandemic. People with nowhere to go started buying new computers, cellphones, and other electronic gadgets to make their stay at home more comfortable.
Semiconductors, also known as chips, have properties that make them essential for many industries. They are generally made of silicon and are used to power a wide range of devices such as vehicles, personal computers, home appliances, smartphones, and gaming consoles.
The manufacturing of these chips is a complex process that can take months. As a result, manufacturers were unable to fulfill the growing demand for these parts, resulting in a car shortage that coincided with that of computer parts and other semiconductor-reliant products.
Furthermore, the automobile industry’s decision to shut down car assembly plants during the epidemic was a big contributor to the car shortage. People couldn’t go to work in such close quarters on the factory floor.
As a result, there are currently long wait times for new vehicles, as well as a rise in the demand for and pricing of older vehicles.
What Is the Impact of the Car Shortage?
In Canada, car inventory is down by 20% compared to the pre-pandemic, according to James Hancock, director of business development for Canadian Black Book, and the shortage is expected to worsen as the economy reopens.
In The United States, where life has returned to normal, new car inventory is down 50%, pushing up prices and demand. This resulted in prices that were higher than the vehicle’s original price.
A 2019 Toyota Tacoma SR double cab pickup truck, for example, had a price of just under US$29,000 when it was new. Two years later, dealers in the United States are charging nearly $1,000 more for the same vehicle used.
Unfortunately, the situation in Canada is deteriorating as vehicles are being exported to the United States to be sold due to advantageous exchange rates and higher prices. Canadian sellers are even being outbid at auction by US dealers willing to pay a premium for old cars.
When Is the Shortage Expected to End?
The situation is expected to intensify even further when the country reopens. As people return to normalcy, there will be more traveling and road trips, which will correlate with increased demand for new cars.
So, why is the problem surfacing now? One reason is that the COVID-19 lockdown obscured the problem. People were confined in their homes and apartments, with nowhere to go, which translated into less need for vehicles and driving.
While the end of the COVID-19 pandemic is near, the semiconductor shortage is expected to normalize by the second half of 2022 or early 2023. So car buyers who need a new vehicle but want to wait, it may take a while.