There are extraordinary things happening in the car market, and it’s currently reaching previously unseen proportions. At first glance it looks looks like a salesman’s dream, whether he/she sells new or used cars, thereby also meaning a buyer’s nightmare. However, as we know good things (from the seller’s perspective) tend not to last, and there’s reason to think it could get worse both for sellers and buyers before it gets better. Instead of making this any more cryptical, let’s look at what’s happening.
It all started with a certain virus from which large parts of the world are finally recovering and returning to some kind of normality. Removing face masks and being able to go dancing again isn’t the same however as all supply chain bottle necks caused by Covid restrictions disappearing overnight. This is especially true for China that continues to pursue a zero-Covid policy and in true dictatorship style doesn’t shrug at the idea of closing down a 15-million region cities at the sight of a few Covid cases. What is especially hurting the automobile sector is a global deficit of semi-conductors and micro-chips, causing severe production delays and stops, and in some cases even orders for new cars being refused.
Looking at some concrete examples, if you’ve been seduced by the new G-Wagon but haven’t put in your order yet, that’s too bad. Mercedes-Benz announced a couple of weeks ago that they have stopped taking orders for the car as a shortage of certain parts has led to reduced production, meaning the order book is full until and including 2024. That’s a full three years from now! The G-Wagon is perhaps the most extreme example but far from the only car Mercedes has issues with. You’re thinking of going electric and buy a new EQS? You’ll get it in the spring of 2023 if you live in Germany (and probably no sooner in other regions). The same is true for many other EV’s. The nice guys at Volvo still send me post and when they did so a few weeks ago, it was to tell me that it would really be a good idea if I bought one of their cars on stock rather than order a new one (I did neither). And my new friend the Range Rover dealer congratulated me on having gotten my hands on such a fine example, as orders for the new model (which by the way looks sensational inside and out, more on that some time in the future) are piling up with year-long waiting times as a result.
Car makers are of course not sitting with their arms crossed waiting for things to improve, quite the contrary. Larger groups are said to have taskforces scanning the market for every micro-chip they can get their hands on. Porsche is building dummy chips into some cars with a promise of replacing these with real micro-chips when they become available again (yes, you read that right). Peugeot is even installing analogue gauges rather than digital into the 308 as these don’t require micro-chips. Interestingly some brands seem less affected, especially BMW which still manages to deliver most models in three to five months, including EV’s. It would be really interesting to know how they manage that, but it’s probably an especially well-kept secret… On the whole however, factories have half-finished cars piling up and car dealerships do what they can, meaning selling off stock- and pre-owned cars.
For car buyers this is not very good news. Obviously cars on stock may not correspond to the spec you want, and the days you could walk into a dealership and get a 10% discount on a car in stock are long gone. The same goes for many used cars (but not all as we’ll see further below), with prices in the used car market sky-rocketing (coming back to that G-Wagon, many 1-2 year old G63’s with up to 20′ km on the clock now trade above their price as new). According to Labor Department data in the US, used car prices on average increased by 40% (!) in 2021. In Europe the same number is around 25%. The Dodge Grand Caravan (known partly as the Chrysler Grand Voyager in Europe) is in the lead with an average increase of 69%, but others include for example the Prius (+61%) and the Audi A6 (+54%, source Edmunds).
Of course things will improve, but there’s reason to think they get worse before the get better. Dealers will run out of cars putting further upward pressure on used car prices, and delivery times could well increase further as there is no quick fix to the problem in sight. So what do you do if you need a car? Well, luckily there are always some segments in the used car world that are not part of the general price trend, and none more than 5-10 year-old luxury cars with big engines. This category obviously include some of the best cars ever built. The downside is obviously that the massive depreciation is on one hand explained by higher running costs and on the other by a view that they are “stranded assets” in the ongoing electrification of the car world. Petrol cars will however be around for many years still, and given life is far too short to drive a Priu… sorry, boring car, why not enjoy what is clearly the best opportunity in today’s market before it’s too late?