Automotive dealers were pushing for the government to allow them to reopen their showrooms fully amid the pandemic and got their way eventually. However, considering the condition of the United States economy characterized by a dismal recovery prognosis, you might wonder about the reason behind that. In this case, you might think that only a few people buy cars during this period. In reality, people have shifted from buying cars into buying trucks. For instance, the statistics from the Labor Department indicate that in April 2021, automotive dealers in the US sold approximately 17,000 more pickup trucks than cars. It was the first time in history dealers recorded such sales. Read on to understand some of the underlying reasons for the surge in prices for 4×4 trucks.
Shortage of microchips
Strategy: The shortage of semiconductor supply has contributed to reducing the computer microchips used for trucks. The average truck can use between 15 to 35 microchips, but the coronavirus pandemic-related slowdowns and congested port facilities have significantly reduced availability. Although manufacturers can add tires, axles, foundry parts, and wiring harnesses after assembling a truck, the lack of microchips has slowed the entire assembly of trucks.
Furthermore, computer chip makers opted to switch to the manufacturing of semiconductors for gaming, laptops, phones, and other consumers at the start of the pandemic. Such a switch added to the shortage of automotive microchips, forcing automotive companies to close their truck factories temporarily. Additionally, rental vehicle companies normally outsource the latest models of used trucks and have opted to increase the few vehicles since they are not getting new ones. Therefore, higher prices and shortages of new trucks have made people move into the used market and increased demand in that sector.
Shortage of engine replacements
Typically, when the engine of a used truck fails, car dealers opt to rebuild the engine before selling it. An engine rebuild will involve modifications such as: typically.
- Installing graphite coated pistons
- Installing chrome-plated valve stems
- Adding Teflon rear seal
- Installing chrome molly piston rings
- Installing hyper eutectic pistons
- Putting in a hardened crankshaft
- Replacing exhaust valves and intake valves
The addition of high-performance truck parts that are more resistant to friction and heat enhances the durability and performance of the engine and transmission. Rebuilt transmissions offer cost savings in terms of vehicle maintenance and longevity, but they have become more costly due to the short supply of parts from suppliers who have reduced their operations. This is the case mainly because a rebuilt transmission will contain new parts that are the latest ones available and rebuilt in a factory setting. Unfortunately, the manufacturing and shipment industry faced operational challenges. Operational challenges in manufacturing almost always lead to less of a supply. But some retailers like CarPartsPlanet.com are holding pricing steady and offer less expensive transmissions online.
More people returning to work
Most Americans buy vehicles to help them with commuting to their workplaces. In 2021, employers started to notify their workers that the office places they closed in 2020 will be reopened slowly as the grip of the pandemic reduces its hold on the economy. Therefore, most people who delayed truck purchases due to limited commuting and job uncertainty started to buy up the used trucks that were available on the market at the time. Others who board public means of transport to workplaces are now searching for their vehicles to limit the potential exposure to COVID-19 as well. All of this results in a higher demand for used trucks, driving up the price.
People are shifting from cheaper trucks
A piece of the puzzle that has led to the soaring truck prices is consumer needs. Even before the pandemic, people had started to shift from buying less expensive vehicles to costly pickup trucks because of low gas prices and the affordability of trucks at the time. In contrast, manufacturers have responded by reducing the production of less famous truck models to get computer chips for more popular trucks. Also, consumers are enticed by the numerous features provided by trucks. Due to the ability of trucks to carry heavy loads, especially household supplies for family upkeep amid the pandemic, people are even willing to pay 1.5 times the normal retail price a truck used to be sold at a decade ago. Based on that, the car dealers have responded by increasing their prices.
Furthermore, the demand to deliver freight on time has remained level and even risen in some areas throughout the pandemic, and trucking firms with staffed drivers have responded by charging higher fees. In turn, trucking companies use the extra funds they generate to buy more expensive trucks that have better features. Notably, the freight rates have been exacerbated because most people have leveraged online delivery and ordering, supported by the stimulus checks offered by families with extra income. In such a case, trucking firms have found themselves in a predicament because they need more drivers and strong trucks. Thus, most opted to invest in newer used trucks, but dealers sell them at higher prices due to shortages.
Availability of more funds
Most workers faced serious economic setbacks, and others lost their jobs at the start of the pandemic. However, those who continue to work have more cash than normal. In particular, people spend less money on eating out and vacations, and some receive stimulus payments from the government.
Additionally, low interest rates are enabling most buyers to spend less on vehicle payments, newly acquired mortgages, and even to halt student loan repayments. Not only that, the boom in home refinancing in 2020 minimized mortgage payments for millions, making it easier for Americans to afford to buy the trucks they want. In this case, more people are buying more expensive used trucks over long-term loans as they take advantage of the government directive to financial institutions to offer favorable loan terms like 0% financing. Furthermore, rental truck firms that sold most of their fleets in 2020 to raise cash in order to survive the economic downturn face shortages now as travel rebounds.
Needless to say, the COVID-19 pandemic has contributed to delays and shortages in all supply chains, including the parts and materials used to develop new trucks. With more trucking firms opting to buy more trucks and manufacturers not able to keep pace, the market for used 4×4 trucks has continued to surge amid this post-pandemic era we are in. However, there is hope that as the economy continues to return to normal, the price of supplies required to develop trucks will be reduced. However, it might take several years for the prices of used 4×4 trucks to normalize, since the modern trucks are increasingly roomy, efficient, comfortable, and capable of doing more tasks, making people buy.