Under normal circumstances, the value of a car is a one-way road.
The act of driving away from the dealer will erase a large amount of cash from the value of the vehicle and begin an unstoppable decline. This decline will continue for about ten years, when they are treated as worthless waste.
In the turbulent months since the pandemic, the price of used cars has been rising steadily due to the imbalance between supply and demand caused by the coronavirus crisis and chip shortages.
Before this year, the biggest increase in history was 1% in February 2018. According to data from Cap Hpi, a data group that has tracked real-time prices since 2012, the increase in May was 6.7%.
“Usually cars will depreciate, they will not appreciate,” said Deren Martin, head of valuation at Data Group. “But now the car is an investment.”
The front yards of the United Kingdom, Germany and the United States have all felt the price increase, worrying that it may increase inflationary pressures in other economic sectors.
According to data from the leading sales website AutoScout24, in Germany, used car prices hit a record high in April. The average price for the month was 22,424 Euros, which is more than 800 Euros more expensive than at the beginning of 2021.
In April 2020, the average price was 20,858 euros, an increase of about 200 euros in a year.
“In the past, due to seasonal reasons, the price curve usually dropped at the beginning of spring and summer,” said the company, which has about 2 million cars on its website.
It added that the reason for the turnaround “may be mainly due to the scarcity of supply”, “but the increasing popularity of luxury cars and classic cars has also caused a relatively large increase in average prices.”
In the United Kingdom, an Audi A3 that has been in use for a year is now worth 1,300 pounds more than its counterpart a year ago, an increase of 7%, while the Mazda MX5 sports car has increased by 50%.
“I have been doing this for 28 years and I have only seen this happen twice,” said Daksh Gupta, chief executive of British retailer Marshall Motors.
The other time was after the 2008 financial crisis, when prices rose in 2009, because the pace of demand recovery exceeded the pace of industry development.
This time, there are two main factors at work.
Since the end of last year, the demand for cars has surged, as consumers who have saved money by working from home and canceling foreign holidays have sprung up.
The performance of sports cars and convertibles is particularly strong, but the prices of each category have risen, and many motorists are still keen to avoid public transportation.
A survey conducted in Germany by Deutsche Automobil Treuhand, which collects data on behalf of industry organizations, found that one-third of used car buyers buy a second car to help others in the family avoid public transportation.
“This is the highest level of used car demand I have ever seen,” said Robert Forrest, CEO of Vertu Motors.
Auto Trader, an online car market specializing in the sale of used cars, has 39% more visits than in 2019 before the outbreak of the pandemic.
“Everyone thinks that pent-up demand will decline, but it has continued,” said Ian Plummer, Auto Trader’s commercial director.
But the real squeeze comes from supply.
The storm in Texas and the fire at the Renesas Electronics factory in Japan (one of the world’s leading semiconductor manufacturers) exacerbated the chip shortage caused by the pandemic.
This leaves the industry short of millions of cars, and there is little hope of making up for the losses before next year.
At the same time, as few drivers are trading new models, and car rental groups have not unloaded cars, inventory is low.
The dealer also made more money.
Cambria CEO Mark Lavery said: “If they have enough cars, the dealership is currently at its best.” “The demand is crazy.”
But eventually the supply of new cars will be exhausted.
Ivan Drury, head of second-hand cars at Edmunds, a US data group, said: “A new car buyer can understand a car that has been used for 1 to 2 years, but any old car will sneer at it.”
The imbalance between supply and demand will also get worse before it improves. Only by solving the chip crisis and restoring normal production levels can the trend stop.
“When will it end?” said Plummer of Auto Trader. “It all depends on the balance of supply and demand, and how long we have been enthusiastic about cars as we are now. Obviously a few months, but whether it will be a few years, we can’t say yet.”