The Chip Shortage 2023: Hikes in Car Prices and Car Insurance

The average car has more than 100 chips on board, with many vehicles requiring thousands of semiconductors to control safety features, the electrical and powertrain systems, infotainment, connectivity and more.

The COVID-19 pandemic triggered the chip shortage because of virus outbreaks and labor challenges during quarantines. Geopolitical uncertainties, like the war in Ukraine, have only worsened the situation. Each link of the global supply chain has been disrupted, but the automotive industry has likely been impacted the most by the chip and semiconductor shortage.

As car manufacturers scramble to catch up, car prices have fallen somewhat, but car insurance rates have gone up and are still rising. After all, you’ll need replacement chips if and when you find yourself in an accident. Automotive-grade and high-end semiconductors are still facing problems, with lead times averaging 52 to 78 weeks. 

Unfortunately, there are no signs of a full recovery for the chip shortage in the near term. The economy has turned sluggish, so we are facing chip shortages again, with lengthy lead times and big price increases. The chip supply problems will most likely continue well into 2024 and possibly 2025.

Not only is the chip shortage affecting car prices, it’s raising rates on car insurance across the board and especially for cars that utilize certain high-end semiconductors.

Here’s everything you need to know if you’re car shopping or are facing ridiculously high car insurance rates.

Key Takeaways The global chip shortage has caused an increase in vehicle prices and compromised features on cars that require chips Your car insurance rate will most likely increase if it has not already due to the chip shortage. There have been some improvements in the chip supply chain but there is still a great demand for newer vehicles and chips.

Consequences of the Chip Crisis and Which Cars Are Affected

Semiconductor suppliers have been raising prices from 3% and 6% to help stabilize the supply chain. For luxury cars, there’s been a 10% increase for high-end semiconductors and by 20% for less advanced chips. These price hikes are passed onto the customer with higher car sticker prices.

Also, the shortage of semiconductor chips is forcing some car manufacturers to sell their most popular models without all the chips they are designed to include, sometimes compromising the safety features of the cars.

The Chip Shortage and Car Insurance

The chip shortage definitely impacted car insurance rates because it caused hikes in repair costs, which means that premiums were raised to account for the increase.

Many drivers found themselves underinsured because of the chips needed when repairing their vehicles after an accident even if their rates did not go up. Also, more cars are being deemed a total loss because of the high repair costs.

Many insurance companies today are charging higher premiums or requiring higher deductibles due to the limited availability of new vehicles. Cars with safety features, such as backup cameras or blind spot monitoring are in high demand due to the shortage, so you may have a car that doesn’t qualify for full safety equipment discount.

Improvements in the Chip Supply Chain

International governments are working together to increase chip capacity during this global shortage. In July 2022, the United States Senate and House of Representatives passed the CHIPS Act, which includes roughly $52 billion in government subsidies for research and production of semiconductors in the U.S. The bill also provides chip plants with tax credits worth nearly $24 billion to encourage U.S. chip manufacturers to scale production. The European Union, South Korea and Japan have followed the U.S.’s lead and are subsidizing production of chips and semiconductors.

Geopolitical uncertainties, like the war in Ukraine, have only worsened the shortage of chips and semiconductors.

Semiconductor manufacturers are wary of over-production in case demand continues to weaken due to inflationary pressures on people’s wallets.

Tips When Shopping for a Car During the Shortage

Look at models you weren’t previously considering if you’re trying to avoid price hikes and unaffordable premiums. Or, fix up your old car if it needs work and wait out the economic storm. Make sure you compare car insurance quotes because each insurer will rate you differently, and you never know who will give you the most reasonable rate.

Some cars were not very affected by the chip shortage so seek those brands when shopping for a new car because they will be more affordable. Used cars are less affected by the chip shortage but prices on insurance for used and new cars will still be high, especially if the model requires new chips, in case of a covered accident.

If you’re still in the market of buying a new car, find out which chips, if any, the manufacturer has been skimping on to push cars through production.

Tips on Car Insurance During the Ongoing Chip Shortage

Since you may be paying more for a car or your car may be deemed a total loss at a lower value than you’d expect, you better get the right car insurance and the right coverage in case you have an accident. The threshold before a car insurance considers a car totaled is not very high considering the high value of cars today.

Comparing rates is really the only way to get the best deal, but insurance is not a one-size-fits-all affair because each insurance company will rate you differently. Your profile may be seen as risky to one insurer but not another.

Cars and Manufacturers Most Affected by the Chip Shortage

Jaguar	Chevrolet
Toyota	Cadillac
Ford	Hyundai
Volvo	Jeep
Honda	Dodge
Stellantis	Mercedes-Benz
Volkswagen	Mini Cooper
Nissan	BMW
Mazda	Mitsubishi
GM	Subaru

The automotive industry has been hit hardest and car prices have soared.

Cars Not Affected by the Chip Shortage

Nissan Altima	Nissan Titan
Ram 1500 Classic	Nissan Sentra
Hyundai Sonata	Volvo XC60
Jeep Compass	Ford Expedition

How Has the Global Chip Shortage Affected the EV Industry?

Drivers looking to buy a new EV may have to wait a few months for delivery. The good news is that you could get a tax discount of up to $7,500. Electric vehicle production is expected to increase significantly over the next few months despite the global chip shortage. Electric vehicles could be cheaper now than in the past two years since more manufacturers are willing to lower their prices.

If you’re paying high car insurance prices, don’t expect miracles but you may save a couple of hundred dollars a month by switching. There are dozens of insurers out there, and some smaller ones that offer better rates. If you want to compare prices with the reputable ones all at once, just enter your zip code on this page to answer some questions and get started on comparing rates.