Both new and used car and truck prices have been soaring as major manufacturers have had to curtail production because of worldwide shortages of essential semiconductors.
This presents a serious dilemma for consumers and investors. Clearly, this not a good time to buy a new or used vehicle. Prices are up significantly across the board for both new and used cars and trucks. But, as new vehicle production catches up with demand, prices are likely to retrace to historical norms, over time. This could result in material depreciation losses, and to the extent that new purchases are substantially financed, many loans could be under water quite quickly. If you can, wait. If not, look at leasing, as the current high prices for vehicles may be, at least partially, offset by improved residual value estimates, a key element in lease prices.
Investors should consider the implications of high vehicle prices for companies dependent on a supply of realistically priced new vehicles. The rental car industry comes to mind, but they are far from alone. The Nation’s entire supply chain has been affected. However, the scope of the impact varies significantly between industries and regions. Accordingly, prospective investment opportunities may require a deeper than usual evaluation.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®
