When is the pricing bubble going to burst?

[Temujin]

Between a pandemic that just won't quit and the global chip/part/etc shortages that stemmed from it, the new and used car markets are completely FUBAR at this point (and have been for ages now).

Whilst run-of-the-mill grocery getters have seen an increase of sorts, specialist cars e.g., JDM, sports cars, hot hatches, etc have seen anywhere between 10-??% increases, some more than doubling (though they probably would eventually anyway, citing Nissan S-Chassis prices as example).

When do we think things might normalise?
Will they ever normalise?
Is it going to swing the other way with a massive crash?

I understand it's unlikely for classic/rarer cars that have increased to drop much, but your average cars surely are going to go back to at least pre-covid numbers...

 

[Kenai]

I think it could well take a long time, a year or two, to go back to 'normal'.

I think what we're seeing now is a bit of a peak with a combination of factors including new car shortages, changed working habits and buyers feeling flush with lockdown savings but longer term there is still going to be a section/age of the used car market with considerably less cars in it.

2021 looks to be on track for slightly better new car performance than 2020 but still not likely to be anywhere near 17,18,19 levels. So a 35% shortage in new cars will soon be a 35% shortage in one year old, two year old, three year old cars as time goes on. There will be an effect of lower supply vs demand due to that.

That will no doubt be impacted by new car sales behaviour though - even if there's a shortage of two year old cars once new car availability is good, they still have to present a value choice vs buying new(er) and we're yet to see how manufacturers will approach that - I imagine they will be cautious about flooding the market too quickly and causing a crash in values but equally they will want to get sales back up.

 

[Jono8]

I imagine most things might be due a crash soon.

On the used car front I'd be very wary of buying used right now (especially ICE). Once shortages and supply get back on track for new electric vehicles the dynamic will shift considerably.

 

[naefeart]

I imagine most things might be due a crash soon.

With rising rates and inflation, I don’t see any meaningful price crash anytime soon.

By the time vehicle supply is back on track (late ‘22, early ‘23?) cars and luxury items will just be more expensive anyway.

This is why I decided to buy now (at the right price of course). In my case electric 4-door executive saloons will still be hugely expensive in future, so I might as well enjoy my ICE car while I can.

 

[DRZ]

I'm in the market for a car at the moment and I am keeping a close eye on the values of a few cars. I've noticed cars are either sitting around for longer than usual and/or are starting to get discounted. One car I am interested in has dropped £4k this morning, for example. Tempted to hang on a little longer and see if things continue to soften over the winter as per usual before a bounceback in the spring.

 

[silvagti]

I think at this point the only thing that will drop prices is either a sizeable increase in the price of petrol or a drop in the price of new electric cars.

i suspect many People are hanging onto what they feel will be their “last” ICE motor longer than usual with the intention of replacing it with something electric in the next few years.

 

[b0rn2sk8]

I posted this in the WBAC tread:

Given the shortage of new cars goes well beyond a ‘blip’ now, even if new car supply for back to normal tomorrow, you’ve got 18+ months where supply was low and a back log of buyers on top of all the people who would have normally bought cars.

Also as you’ve had 18 months of low supply that is going to be persistent through the used market for over a decade depending on what era you are looking at, even if it’s fixed tomorrow.

If it was fixed tomorrow I’d say it would take 3 years for depreciation curves to return to ‘normal’ but higher average purchase prices will nudge new cars higher. I say 3 years because that’s the usual new car ownership period in lease/PCP and people tend to own cars in cycles. The longer this goes on, the longer it will take for depreciation curves to return, if they ever do. The transition to EV is also going to throw a spanner into the works. The prices of EVs is likely to remain higher.

In short, as long as demand > supply then prices will remain high and this will perpetuate through the used market for a decade or more as there will always be a shortage in a section of the market until the cars get old enough where no one really wants them anymore.

 

[[TW]Fox]

At some point you'd think we'd run out of people who are happy to spend 30 thousand quid on a 3-4 year old version of the worst 3 series BMW have ever made. At some point you have to draw the line and when you can still order a brand new current model 330i for just over 35k that line should be far below a 30k F30.

Where are people getting all this money from that they are happy to give away enormous amounts of it for quite average used cars?!

There has never been a better time to keep the car you already have.

 

[SkodaMart]

Where are people getting all this money from that they are happy to give away enormous amounts of it for quite average used cars?!

I’ve been wondering this for quite some time reading motors.
All on the drip would be my guess.
New BMW on the drive but can’t afford a pint.

 

[Temujin]

As above in my view, I would be surprised if many are splurging their savings on inflated terrible decisions, but it seems your average earner can go out and get 30k+ finance in very little time and given how the whole pandemic has made people feel it's likely they're just YOLOing, for want of a better phrase!

I'm hoping that we're at the summit of used car appreciation (notwithstanding the rarer/classic examples) so hopefully there will be a bit of a drop in the not too distant.

 

[BUDFORCE]

Never.

This is the new normal, in fact things are just going to get more expensive.

We've had our day.

 

[Kenai]

Where are people getting all this money from that they are happy to give away enormous amounts of it for quite average used cars?!

There has never been a better time to keep the car you already have.

A lot of people have been saving more money than usual during lockdowns - less holidays, less eating out, less commuting etc. - they have a bigger monthly surplus than they're used to and then the inflation effect travels throughout the entire used market.

I've had Cazoo shout £17,500 for my 50,000 mile 2017 Skoda that cost me £21,000 when it was a year old - whilst the more logical and analytical person like you will understand what that really means for onward purchasing, for many it's a case of "wow I have so much equity and I can afford £450pm now" that they immediately look to throw it at something.

 

[Tinders]

It’s utter madness. A friend restores old fiestas and escorts, and even the MK4 fiesta ZS is fetching a good few K for a tidy one.

I bought a Corolla 1986 1.3 auto 5 door hatch a few years back. I paid £200 purely just for a laugh, it’s been in the back of my dads units for yonks, I’ve been offered 1200 notes for it, to be fair it’s tidy and rust free, but it’s so ordinary I can’t understand why someone would want to pay so much for it, pretty much anything old is a ‘classic’!

 

[Jono8]

I think at this point the only thing that will drop prices is either a sizeable increase in the price of petrol or a drop in the price of new electric cars.

i suspect many People are hanging onto what they feel will be their “last” ICE motor longer than usual with the intention of replacing it with something electric in the next few years.

Yep. Going to run mine into the ground and then get a bran new electric most likely.

 

[SquirrelMadness]

It's times like these the best course of action is to download Forza 5 and get one of those motion driving simulator things. They haven't gone up as much.

The weather in Forza seems better as well. Dunno if any of you have noticed but the weather has been ridiculous this year.

 

[Hades]

Another factor in this has been the massive amount of money pumped into the economy by the BofE printing money. It has to go somewhere.

 

[naefeart]

Another factor in this has been the massive amount of money pumped into the economy by the BofE printing money. It has to go somewhere.

But what extra money does this account for, in people’s pocket?

 

[Hades]

But what extra money does this account for, in people’s pocket?

It doesn't. It causes inflation which effectively reduces everyone's buying power.

 

[jpaul]

are they printing money - no QE ?

With rising rates and inflation, I don’t see any meaningful price crash anytime soon.

exactly inflation is 4.2% eating into/nullifying rise
- bank of england interest rise 0.1 -> 0.25 next year may moderate amount people can afford for cars,
- brexit/article 16 launch - if that goes full metal jacket, could see eu car imports with some premium, would the eu market then soak up the surplus (at least the ev's)
apparently uk import £44bn cars, export£30bn .

 

[naefeart]

It doesn't. It causes inflation which effectively reduces everyone's buying power.

I understand that and agree, but when you said “…It has to go somewhere” I thought you were suggesting it was giving people extra funds to spend… which obviously isn’t the case.

are they printing money - no QE ?


exactly inflation is 4.2% eating into/nullifying rise
- bank of england interest rise 0.1 -> 0.25 next year may moderate amount people can afford for cars,
- brexit/article 16 launch - if that goes full metal jacket, could see eu car imports with some premium, would the eu market then soak up the surplus (at least the ev's)
apparently uk import £44bn cars, export£30bn .

It looks like there is going to be increased and sustained pressure on people’s ability/desire to spend on luxury items in the near future. Will be interesting to see how the car industry respond.