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Why used car prices are so high - and getting higher

Lot of cars parking in the city, view side
(Source: Getty)

The unlikely victim from the COVID-19 pandemic has been microchip manufacturing and the shortfall is driving up the price of used vehicles.

Used vehicle prices in Australia have risen 37 per cent compared to pre-pandemic prices as a result of chip factories being forced to close as a result of the pandemic.

Now, chip makers have warned the chip shortage is set to continue for some time yet.

How chips and cars are related

Microchip factories in many countries have been forced to close as a result of the pandemic meaning many new cars, which are chock full of new technology, can’t be completed.

In turn, this has led to a rise in the cost of used cars as there is short supply for anything new on the market.

And the trend is set to continue, the head of networking giant Cisco, Chuck Robbins, told the BBC he expects the microchip shortage to last for most of this year.

“We think we've got another six months to get through the short term,” he said.

"The providers are building out more capacity. And that'll get better and better over the next 12 to 18 months."

A report by Moody’s senior economist Michael Brisson found that Australian used car prices surged 5 per cent in the first quarter this year.

What else will it affect?

It’s not just car manufacturers that have been hit by the shortage with laptops, gaming equipment, phones, televisions and more, all feeling the pressure.

Consumers will likely face price hikes and product shortages for anything that requires a microchip until the factories are able to meet global demand.

The problem was also recently made worse by the Suez Canal crisis as the Ever Given blocked off chips headed from Asia to Europe.

Major companies like Apple and Samsung have been forced to delay the production of some products as the shortage continues.

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