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The new world of car buying

Assembly line production of new car. Automated welding of car body on production line. robotic arm on car production line is working In 2021 and into 2022, the coronavirus pandemic and a shortage of essential microchips forced virtually every automaker to significantly cut back vehicle production, sometimes for weeks at a time. | Photo by Ivan Traimak/

If you wanted to buy a car before the COVID-19 pandemic, it was a relatively straightforward if somewhat complex process. Typically, you did some online research, lined up your financing, visited several dealerships, kicked some tires, took a few test drives, decided which car you wanted to buy, haggled with a salesperson, struck a deal, and drove your new car home.

Today, the car-buying process has been streamlined, initially because of pandemic-related safety concerns and restrictions. But a number of changes have persisted because customers (and sometimes dealers) prefer them. For example, many customers like not having to visit dealerships, instead having dealers deliver cars to their homes for test drives and generally minimizing in-person contact. In fact, the entire vehicle-purchase process can take place over the phone or online, if that’s what car buyers want.

Three additional, unprecedented things occurred in 2021 that affected and will continue to affect both vehicle pricing and the range of vehicle choices available to car buyers well into 2022: the ongoing COVID-19 pandemic, a shortage of semiconductor chips, and, to a lesser degree, a change in the market position of electric vehicles (EVs).

Continuing effects of COVID-19

The first factor is the ongoing pandemic, which had unanticipated consequences for new-car inventories in 2021. For most of 2020, much of society shut down in an effort to contain the coronavirus. Millions of Americans sheltered in place and worked from home. Many people drove a lot less and put any desire for a new car on hold. As a result of the lower demand, automakers produced fewer cars and light trucks. Vehicle sales for 2020 dropped significantly, to 14.6 million vehicles, compared with 17.1 million vehicles sold in 2019.

In late 2020 and early 2021, hundreds of millions of Americans received COVID-19 vaccines. People felt safer being around other people and started getting out of the house and driving more. Some people who had been working from home returned to their workplaces. Car dealerships came up with new sales practices, developing “contactless” techniques for people who still wanted to visit showrooms. They also increased the ways car buyers could complete vehicle purchases online.

In early 2021, demand for new and used cars came surging back. However, because of automakers’ pandemic-related production shutdowns, vehicle inventory was low, and average prices for both new and used cars skyrocketed. At the beginning of 2021, new cars sold for an average of $40,827, a 5% increase compared with 2020. By the end of December 2021, that number had risen to $47,077.

The chip shortage

Enter the second, related challenge: a lack of the semiconductor chips needed to build the vehicles people were primed to buy. Modern cars and light trucks contain hundreds—in some cases, thousands—of computer chips, the electronic brains that operate everything from fuel-management systems to window motors and advanced safety features.

In late 2020 and early 2021, automakers canceled chip orders because of vehicle-production cutbacks, so chipmakers began supplying manufacturers of smartphones, computers, and video games—which were in high demand during the pandemic—instead. As a result, they weren’t able to provide the types of chips automakers needed as demand for vehicles returned.

Beginning in mid-2021, automakers such as Ford, GM, and Stellantis (formerly Fiat Chrysler) had to shut down production lines for days or weeks at a time while they waited for the needed chips. Some used the chips they had in their most profitable or popular vehicles, and in the meantime they stored large numbers of partially completed vehicles in huge parking lots while they waited for chips to arrive.

In August 2021, Ford’s sales were down 33%; GM said it would withhold or cut production on 200,000 vehicles in the last half of 2021. Production of cars and light trucks dropped an average of 13% industrywide. Overall, the chip shortage is estimated to have cost the auto industry at least $210 billion in lost revenue in 2021, according to industry analyst AlixPartners.

In early 2022, COVID-19 cases, hospitalizations, and deaths began to drop, but because large numbers of Americans remain unvaccinated, it’s difficult to predict the course the virus will take for the rest of the year or whether new variants will emerge. Experts estimate that the market uncertainty created by threats from coronavirus variants and a continuing shortage of computer chips may persist for an undetermined time period. Taken together, these 2 factors could affect vehicle production and pricing well into 2022.

The EV revolution

EV Car

Most major automakers are committing billions of dollars to convert old plants or build new ones dedicated solely to EV production. | Photo by Sergii Chernov/

The third car-buying challenge has to do with EVs—specifically, their standing in the automotive marketplace. For the past few years, EVs have become more affordable, their ranges have increased, and there are more models to choose from. They make up only about 2% of the U.S. fleet, but most analysts agree that EVs represent the future of personal transportation.

The key question is: When will that future arrive? Until now, individual car buyers decided if and when they wanted to buy an EV. That might not be true very much longer.

One reason is that governments around the world have announced their intentions to make it illegal to sell new gasoline- or diesel-powered vehicles after a specific date. The impetus behind such mandates is mainly environmental: reducing the emission of greenhouse gases, which cause global warming, and reducing air pollution.

Among the dozens of cities, states, and countries moving to ban sales of cars that burn fossil fuels are Athens, Madrid, and Paris (beginning in 2025); Hawai’i (2030); California and New York (2035); Germany, Israel, and Sweden (2030); and Canada and Japan (2035).

On August 5, 2021 President Joe Biden signed an executive order to make 50% of new vehicles sold by 2030 zero-emission. The Biden administration also supports extending the EV tax credit and expanding it to a 600,000-vehicle cap per automaker, and creating a national network of 500,000 EV charging stations.

Automakers are following suit. Many have declared that, quite soon, they’ll produce only EVs. They know that governments around the world are mandating increasingly strict emissions standards, and that not meeting them will mean paying hefty fines as well as falling behind their competitors in the EV revolution.

There’s a financial incentive, too: EVs have only about one-third as many parts as cars with internal combustion engines (ICEs), and as battery prices come down, EVs will be easier and cheaper to make—although, because of materials costs, there are limits below which prices can’t fall.

In sum, the combination of COVID-19, the chip shortage, and the proliferation of EVs will affect the availability, types, and prices of new and used cars in 2022—all of which will require patience and flexibility from prospective car buyers.

Excerpted and adapted from the AAA Car Guide, which is also available in hard copy at AAA branches.

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