Used car prices to remain high “until Q2 2022”
As new car sales stall, used car sales boom. It’s a global phenomenon, caused by the microchip shortage. What is it doing to remarketers, and how will the issue evolve? We asked two experts.
Fresh sales figures for Belgium are a good yardstick for what’s happening across Europe, and indeed the world. This August saw just 27,734 new car registrations in the country. In 2019 – admittedly a record year – that figure was 47,705. But even in August 2020, mid-pandemic, it stood at 34,829.
The issue is not demand, but supply. The global shortage of microchips, an essential ingredient for today’s cars, is causing delays in production and long waiting times for new vehicles. As a result, used vehicle sales are soaring. Last month, 57,914 used vehicles were sold in Belgium – more than double the amount of new vehicles.
Taking a helicopter view, Wolfgang Reinhold, president of the European Car Remarketing Association (CARA), assesses the situation as critical, but temporary: “Due to a heavy shortage of cars throughout Europe, used car prices are increasing to a very high level, across the board. It is our estimation that this situation will persist well into 2022 – certainly including the first quarter, and possibly the second quarter of the year.”
To assess the correspondences between both markets, it’s important to understand that even in ‘normal’ circumstances, the used car market is bigger than the new car market, says Jost Dieckhaus, VP Remarketing Europe at AUTO1 Group, one of Europe’s major vehicle remarketing powerhouses.
And of course, supply and demand between both are closely interconnected, as today’s new vehicles are tomorrow’s used ones. But over the past few quarters, a couple of shocks have upended the equilibrium between both.
“The corona crisis and the lockdowns have influenced both the European new and used car markets, and both on the demand and the supply side,” says Dieckhaus. “The uncertainty at the beginning of the pandemic led to workers being furloughed, and thus to reduced car production. Subsequently, OEMs have had problems ramping up production again. In parallel, we’ve seen shortages of raw materials – especially semiconductors.”
The result: widespread and severe pressure on car production. At the same time, the market witnessed robust and even increased demand for vehicles from consumers with high pent-up savings, driven by the desire for individual mobility – this also a consequence of the corona crisis, as people wanted to avoid contagion on public transport.
“This led to higher demand for cars in general. But the effect was even stronger for used cars because prospective car buyers who originally wanted a new car were switching to young used cars instead,” Dieckhaus recalls. “Simultaneous to this increased demand, we see a smaller supply of fresh used cars. And that puts the used car market also in a difficult situation.”
So, it’s not just the new car segment of the market that has a sourcing problem. Classic used car sources, such as rental or leasing companies, are selling fewer vehicles. Also, says Dieckhaus, “we’re hearing from our partner dealers that OEMs are selling fewer young used cars.”
In short, used car prices are in a perfect storm: demand has increased, supply has shrunk. The result can only be a rise in used car prices – to the benefit of AUTO1’s partner dealers, and other sellers of used cars… if they can find them, that is.
As Mr. Reinhold indicates, the chip shortage will eventually pass. But perhaps the market won’t return to ‘normal’ after that, as market conditions themselves have shifted.
We are edging ever closer to the electrification of mobility, but many consumers – and corporates – are still too unsure about the practicality of EVs to take the plunge. This may be an additional delay in the reduction of new vehicle sales, as many are delaying making the investment in a hybrid or pure-electric new vehicle.
It’s telling which used vehicles are doing well (in Belgium at least): petrol SUVs that are recent enough to comply with the current Euro emissions standard. Until higher prices – currently up to 10% over last year – recalibrate demand back towards the new vehicle market…