Nationwide Vehicle Contracts explains the reasons for the increase in new and used car prices
There's no doubt that the car market has gone a bit crazy in the last few years, with prices skyrocketing to all-time highs.
Used car prices have shot up by 30 per cent since 2021, and new car prices have increased by 25 per cent in just three years. This puts more strain on our wallets in already financially challenging times.
But what's caused this increase? In this blog, Nationwide Vehicle Contracts establishes why new and used car prices have dramatically increased and if there is a light at the end of the tunnel for consumers.
USED CARS
1. Impact of lockdown
The COVID pandemic was a strange time for all; we had to change every aspect of our lives for three consecutive lockdowns to help prevent the spread of Covid-19.
With everyone staying indoors, dealerships and factories had to close for an extended period of time, and as a result, sales of used cars decreased.
Once lockdown eased, demand for cars increased again as people were reluctant to use public transport, and as a consequence, prices rose to accommodate for the pandemic.
2. Shortage of used cars
When we emerged from the pandemic, demand for good quality cheap cars dramatically increased, but the supply simply couldn't keep up.
With fewer used cars being sold, it meant fewer used cars were entering the market. Because of this, prices for cheaper used cars increased, which had a knock-on effect up the chain.
3. More money to spend on used cars after lockdown
During the pandemic, we sacrificed the finer things in life, including expensive meals, holidays, and weekends away.
This increased the amount of disposable income many families had, and used cars were seen as a good alternative. Because of a combination of the demand for used cars, and the fact that the public were willing to pay the increase, prices remained high.
NEW CARS
1. Shortage of semiconductor chips
During the pandemic, the automotive industry's demand for computer chips fell as fewer new cars were sold. The gap in the market was filled by other sectors, such as gaming and tech, which saw their sales boom during lockdown.
Now post-covid, car manufacturers are struggling to find enough computer chips for their cars and have had to delay the production of their new cars.
Fewer new cars on the market, and a shift in consumer characteristics to used cars, have caused a considerable increase in new car prices.
2. Influence of the war in Ukraine
In the mid-2000s, Ukraine established itself as a major producer of automotive parts, primarily electric cables, exporting these to many of Western Europe's car manufacturers. Electric cabling is crucial to modern cars, acting as a car's central nervous system.
Since Russia invaded Ukraine in February 2022, cabling production has understandably dropped off, and as a result, manufacturers have to look elsewhere.
Finding an alternative supply for the manufacturer costs a lot of time and money, halting the production of new cars. This means that waiting times remain high, leading to high new car prices.
A LIGHT AT THE END OF THE TUNNEL?
It's only logical to think that if there's been a dramatic increase in car prices, it's natural that it might decrease. However, don't expect this any time soon.
Although there have been some signs of stagnation, it's expected that new and used car prices will remain strong into 2023.
All factors influence one another in this situation. New car wait times remain high due to production issues, forcing consumers to look towards the used car market. However, used car stock remains low, and demand is high, so prices remain high.
Looking for more expert advice on all things cars? Nationwide Vehicle Contracts produce a range of blog articles, including How To Save Money On Car Running Costs and the Top 10 Cars To Take To The Golf Course.
