Car shortage ripple effects could slam consumers, economists say

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There has been a shortage of new cars since early in the COVID-19 pandemic, leading to a number of interrelated and cascading economic issues. More than a year and a half later, the economy is still trying to cope.

It all started when the U.S. economy abruptly shut down. Assembly plants closed for several weeks in April 2020, and struggled to catch up with demand when they reopened. The increase in demand was a surprise, but, in hindsight, it probably should not have been.

With mass transit shut down and fewer ridesharing options, consumers became more dependent on personal transportation. But supply chain constraints, notably the shortage of computer chips, limited auto production.

When auto plants close or reduce output, it doesn’t just mean that they need fewer workers; it also has an impact on plants that make tires, headlights, and other components. That causes municipalities where these plants are located to lose tax revenue. Some economists believe the effects could linger for years.

“It’s a very meaningful drag on growth and employment,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told DNYUZ.com.

Fewer bargains

With a limited number of vehicles to produce and sell, automakers are focusing on the most expensive trucks and SUVs that carry a higher profit margin. A consumer on a limited budget who is looking for a compact sedan is being confronted with smaller selections as well as higher prices.

Pamela, of Globe, Ariz., was able to find and purchase a 2022 Nissan Pathfinder, but they haven’t been able to drive it because of paperwork back up at the dealer.

“I took possession of a 2022 Nissan Platinum Pathfinder that I paid cash for on 8/24/21,” Pamela wrote in a ConsumerAffairs review. “To date, Nissan has not sent the MSO to my dealer so that I can get the title in my name. For nine weeks I’ve had to park my new car, DMV, my insurance, no one shows ownership. I’ve also had to get two extensions on my temporary plates from the dealer. I’m further insulted to get the Sirus notices saying my free trial is over when I haven’t even been able to drive the car.”

Manufacturing economy still growing

Despite these problems, the manufacturing economy is still growing, albeit more slowly. This week, the Institute for Supply Management (ISM) reported that new orders were down 6.9% in October from the previous month. At the same time, the prices that consumers pay are rising. The ISM’s Prices Index registered 85.7%, up 4.5% from the month before.

In its latest report, Cox Automotive found a number of factors in the market that continue to work against consumers. Vehicle prices, both new and used, hit record highs in September and the middle of October. 

Meanwhile, the selection of new cars continues to shrink. New-vehicle inventory dropped below 1 million units, but used-vehicle inventory improved slightly.

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