No one would blame consumers for dreading an imminent car purchase this year. The average price of used cars is up 40.5% from January 2021 to January 2022 and the average price for a new car is $46,000, a 12% increase over the same time frame. On top of the sticker price, financing a car purchase will likely become more expensive as the Federal Reserve moves to raise interest rates to combat inflation.
These price increases will have the most impact on lower-paid employees who drive to work every day. They can’t work remotely, pushing off a purchase until next month or next year; they need a vehicle today. And while it’s easy to blame auto sellers for prices — Ford and General Motors have ordered dealerships to stop making so much profit — the real cause of rising car prices is the major supply chain shift which took place after the world shut down in 2020.
Supply Chain Shift
Automobile manufacturing consumes about 5% to 15% of the available chip supply, compared to half of chips going to the personal electronics industry. When companies, schools, and governments closed due to the pandemic, the percentage of U.S. workers working remotely increased from 6% to 35% in two months, while 93% of households with children reported some form of “distance learning.”
As Motor Trends noted in some detail, computer chip companies “rerouted their supply to the electronics industry, which also showed a willingness to pay more for the silicon wafers.” By the end of 2020, the auto industry faced a 15% slowdown, while the electronics industry expanded by about seven percent.
Then the auto industry rebounded sharply in 2021, in part thanks to remote workers who bought their first cars to move from urban environments to smaller cities, suburbs, and towns. Other factors included record-low interest rates and government checks which temporarily put “free” money in buyers’ hands. The chip supply chain couldn’t keep up with this rapid increase in demand, so auto prices skyrocketed — mostly impacting those whose lower-income, hands-on employment requires a drive to work.
Remote Workers Rewarded
Remote workers have been the upper crust of employees throughout the pandemic. They kept working with comparably minimal interruptions while lower-paid workers in hospitality, tourism, construction, and other industries were jobless. They faced little risk of contracting coronavirus compared to lower-paid essential workers. And they received many of the tax and stimulus benefits provided to most Americans by federal and state governments.
The high cost of buying and filling an automobile reflects this imbalance. Some “essential” staff were highly-paid medical professionals, but most were factory workers, grocery store employees, and other low-paid workers who faced greater COVID-19 exposure as well as employment interruptions. High auto and gas prices, and fewer available cars, are a perfect storm for workers who were already worse off than their remote counterparts. To add insult to injury, the luxury car industry’s sophisticated supply chains put a larger-than-normal percentage of chips in high-end vehicles, while vehicles meant for lower and middle-income earners were left off the marketplace, like Ford’s scrapped $20,000 pickup truck.
As the pandemic slowly comes to an end, policymakers and industry leaders should take stock of the chaos created for an entire segment of mostly low-paid workers. Otherwise, supply chain issues in housing, groceries, and automobiles will continue to give remote workers gains at the expense of their commuting peers.
Dustin Siggins is a business writer and founder of the publicity firm Proven Media Solutions.
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