By John Sullivan
As many Americans endure the rising prices that come with inflation, there is a particular market seeing prices skyrocket. That market is none other than the used car market.
The average cost of a used car in October was estimated at $31,676. According to Nick Woolard of TrueCar, an online automotive dealership directory, that is an increase of “29% compared to a year earlier.”
Most consumers would chalk this up to inflation alone, but in this situation a number of issues are at play. The first of which has to be noted, there is currently a shortage of new cars. With a global microchip shortage, automotive manufacturers don’t have the necessary components for their vehicles’ internal computer systems.
And this is where it becomes a multifaceted issue. The microchip shortage plaguing the world surrounds the highly contested Taiwanese nation. Something most readers wouldn’t know off hand, Taiwan makes the overwhelming majority of the world’s semiconductor chips.
Taiwan Semiconductor manufacturing company is worth $550 billion dollars. It is the eleventh most valuable company on the face of the planet today and enjoys a rare distinction. All of you reading this right now are using their product. That product is the ever-iconic tiny green chip, with goldish-copper lines engraved upon it, embedded in the very device you’re using.
In spring 2021, a shortage of microchips struck the world market as manufacturers rapidly purchased as many as they could. Coincidentally two things coincided with this mass purchasing.
First, the world’s elite automobile manufacturers announced a heavy investment into electric cars. Second, the Chinese government began invading Taiwanese airspace.
In February, Ford announced a $29 billion investment in electric cars. A wonderful thing for those living in populated areas, but for rural Americans it means fewer gas-powered cars being manufactured every year. Sure, they are still happily producing gas automobiles. But obviously if there’s a shortage of microchips, and they’re making electric cars, then they’re making less gas-powered vehicles than they could be.
Couple that with consumer hesitancy for electric vehicles, and you see many Americans choose to buy used vehicles instead. With these new car buys shifting to the used car market, the increase in demand is naturally seeing an increase in price. When you couple this with inflation, and the sagging Covid economy, it paints a grim picture for consumers.
Unfortunately, there is another component impacting the market that many consumers remain unaware of. In early April, a record number of Chinese jets entered the Taiwanese defense zone. This put a massive crunch on the world market for microchips.
The United States government has long been at odds with the government of the People’s Republic of China. In their relationship, the United States’ support of Taiwan has always been a point of conflict for the Chinese. Since the spring of 2021, China has ramped up aggressions. They’ve sent fighter jets into the Taiwanese air defense zone multiple times in consecutive days.
With the potential signs of a third World War on the horizon, electronics manufacturers have been buying every chip they can get their hands on. From Microsoft, Sony, Apple, and Motorola to Tesla, Ford, and Lockheed Martin. The world’s industrial giants are scrambling to secure their inventory in the face of a major disruption of the supply chain.
All these things impact the markets, but possibly none more so than the used car market. Every year, cars die, get totaled, parts give out, etc. Those people have to buy another vehicle to make their commutes, and as more of them turn to used cars, consumers will continue to see prices rise.
Some analysts project prices will continue to rise until 2023. This writer personally thinks those are optimistic projections. The situation in Taiwan is developing constantly, but for now it’s trending towards war, as the Chinese government regularly threatens to invade the island nation.
As inflation continues to evaporate the average American’s spending power, the only hope for the automotive market is for the Biden administration to secure the world’s supply of microchips. Unfortunately, the fall of Afghanistan has left many of America’s allies wary of our support.
Only time will tell if this administration stands up for our Taiwanese allies too.
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