The pandemic has been an interesting period for motorists and motor retailers. Aston Barclay has reported an increase in sales of around 40% across three sectors of the used car market. If you’re planning a purchase in the near future, then it’s worth considering these trends and what’s driving them. In some cases, you might be better off keeping your powder dry; in others, it’s a good time to invest.
What’s causing this, and why are prices expected to continue growing?
It all comes down to supply chains of critical components for the new car market. While the first lockdown was in force, demand for cars plummeted. Since no-one was on the road (or even allowed to visit a dealership), there was no sense in buying a new car.
The manufacturers, broadly speaking, reacted by limiting production, and slashing orders of critical components like computer chips.
At the same time, demand for silicon in computers and other home-entertainment products was surging. This effectively forced auto manufacturers to the back of the queue for new chips when the roads opened up again.
To understand this, we should bear in mind that it takes several months for a fabrication facility to turn a single silicon wafter into chips which can be used by the consumer. We should also bear in mind that many of these facilities are located in East Asia, which is still being affected by outbreaks of Covid-19.
According to Intel CEO Pat Gelsinger, it’s unlikely that the shortage will end this year. This means that the market for new cars will be limited. Motorists who might otherwise have been shopping for something new have therefore been forced to turn to the used market – hence the surging demand there.
Given that the price of used cars is surging upward so quickly, many reputable used car dealerships are deciding to hold onto their stock and reviewing on a near-daily basis. This, in turn, restricts demand, and pushes the prices up further in a spiral. Even online-only disruptors with limited overheads are struggling to source stock.
Rental fleets are a common source of stock for used dealerships – but limits on travel mean that car hire firms aren’t renewing their stock as often, which is restricting supply still further.
There are range of factors at work here, all pushing prices in the same direction. It’s highly likely that prices will remain high for the next twelve months as supply issues resolve themselves.