Abstract:
The Covid-19 Pandemic has affected our society’s economy as a whole in any and every way a person can think of. What has been the outcome of shifting priorities in ECU component manufacturing and is there proof of car prices increasing? In this experiment, the research and data collected about how the car market has changed including the incoming car imports from other countries will reveal the answer to that question. The parts used to manufacture ECU’s being the same parts used to make laptop components caused there to be less supply for vehicles. Electronic devices were prioritized due to many people being home. This supply shortage in turn caused the prices to rise in the car market. Finally it can be understood that the supply and demand relationship where the supply is affected negatively is the reason for the dramatic increase of prices.
Introduction:
The covid 19 pandemic has affected the production of vehicles into our economy. This dramatic halt of production caused the prices of vehicles to rise substantially in 2020. A main cause of the halted vehicle production in 2020 was the closing of the factories that manufacture Electronic Control Units (ECU’s). An ECU operates similar to how our brains and nervous system works. ECU’s control functions like power windows, seats, steering, the vehicle’s security along with its safety features of airbags and automatic emergency braking. Most importantly the ECU controls the vehicle’s engine, making sure it completes all the necessary functions programmed into it and the inputs of the driver and passengers. The purpose of this study is to investigate the effects the pandemic has had on our economy, specifically in the places where the average person would not focus on or know the reason behind.
I will investigate; if the production of an essential car part is halted then will the car prices after that time increase? Ever since the pandemic, the cost of everyday life has gone up due to inflation. People were less interested in buying cars during 2020, and as time progressed car prices stayed high because there were less cars to go around. There were scheduled to be many new cars in 2020, however the rapid growth of online ecosystems demanded for more mobile devices like tablets and computers for adults and kids at home. The same components that make up a car’s ECU are what also make the motherboards for these devices, so due to the increasing demand, the factories that were still open either shifted to the manufacturing of motherboards or had many of their components bought by other companies to produce the devices. When compared to previous years, car prices were significantly higher.
My research regarding this topic fills a “gap of knowledge” to the average person that may have been looking to purchase a car in the years 2020-2023(present) that may be wondering why prices for the same cars have increased so much. Most people do not spend their everyday life listening to vehicle manufacturing news nor researching the effects of everyone being home for about a year. There could be many reasons people suggest as to why car prices were higher, maybe inflation, maybe no one needed to drive anywhere since most places were closed, maybe it was due to parts being scarce, but I would like to provide a concrete reason on why instead of just speculation.
Materials:
- Data gathered by The Observatory of Economic Complexity showing a drop of vehicle imports in 2020, the CNBC and the Consumer Reports organization.
Procedure:
Firstly, this experiment started by researching what an ECU is. The information gathered from one of the resources stated; an ECU is an Electronic Control Unit, a small yet key device used to make vehicles function. Showing the importance of this part and giving the understanding that without an ECU, a vehicle is just an oversized paper weight. The next source that followed after the first was used to investigate the vehicle trade rates from different countries into the United States. Finally the last source was investigated to show the comparison of relatively new and old car prices from before and after the pandemic.
Results:
The data shows the decreased import rate and trade value from 2019-2020. After reviewing the data from the years 2016-18 also, the import percentages were steadily and slowly increasing from Asian and European countries to the US. Certain western states import rate decreased while the rate from Asian countries still maintained an increase.
“As the auto industry continues dealing with a shortage of computer chips needed to manufacture today’s vehicles, new car inventory has fallen short of demand throughout the pandemic and spilled into the used-car market” (O’Brien 2022). Due to this demand, car prices have remained high even three years after the start of the pandemic. The table shows what the prices in the car market was like in the final quarter (last three months) of 2020 and 2021.
Car prices for one to two year old cars are $41,121 on average as of Jan. 30 which is up more than 50% compared to the price of $27,301 in January 2020 according to the car shopping app CoPilot, however the prices have started to steadily decrease in the last month (O’Brien 2022).
Following the observations of 2020, articles predict that the ECU chip shortage will continue into 2023. Certain car manufacturers have decided to limit certain car features like heated seats until more ECU chips are available (Preston 2021).
Discussion:
Based on the observation made from CoPilot, cars were significantly cheaper than they are now. The smaller supply of cars into the consumer market simply means that we wouldn’t be able to find the same deals we once could before the pandemic. The reasoning that could be understood by economists is basic supply and demand. If the supply is less than the demand, dealerships are more than able to raise the prices of their inventory, even if it seems “heartless”. “At the same time, demand spiked for computers and other electronic devices because people needed to work and be entertained at home. When auto factories got rolling again and sales picked up in a big way toward the end of 2020, microchip manufacturers were unable to keep up with the surging demand” (Preston), another reason as to why the manufacturing of ECU’s have slowed down. The most common advice people can receive from these observations is to have patience until the market is more in favor of the buyer with better deals.
Conclusion:
Though the prices have started to decrease, it is undeniable that the halting of ECU production has been the cause of prices rising. Most people would not have known the key factor in why the prices have risen. The price differences observed in 2020 and 2021 shows the main effect people notice from the Covid-19 Pandemic, where a 3 year old car’s price was raised from $27,000 to $41,000. Even if they may have thought it was due to less cars being produced, their research would simply stop there because it has the same reasoning, less supply with high demand results in higher prices. Some car manufacturers have even decided to limit their vehicles’ features simply to try and meet the demand. A Car’s ECU controls all safety features and special gimmicks that cars may come with, so without it, cars are not able to be used at all. With that reasoning, it only makes sense to factor in the supply decreasing due to the pandemic as the main cause.
References:
Global Chip Shortage Makes It Tough to Buy Certain Cars By Benjamin Preston (Consumer Reports)
Published May 6, 2021; Retrieved from https://www.consumerreports.org/buying-a-car/global-chip-shortage-makes-it-tough-to-buy-certain-cars-a8160576456/
Used-car prices may be easing, research shows by Sarah O’Brien (CNBC)
Published Thu, Feb 3 2022 2:09 PM EST ; Retrieved from
https://www.cnbc.com/2022/02/03/used-car-prices-may-be-easing-research-shows.html
Where does United States import Cars from? By The Observatory of Economic Complexity (OEC)
Retrieved From
https://oec.world/en/visualize/tree_map/hs92/import/usa/show/178703/2020/
