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  • Writer's pictureSylvain Tornare

Why Pay Price Premiums on Modern Cars?

In the car market, some vehicles are traded at prices above their value when new. Rarity is one of the factors behind this phenomenon. However, this trend can also be observed in production cars. Let's find out why.

Carequest car broker Switzerland_Porsche 992 GT3  and GT3 Touring GT Silver

In recent months, many models have increased or stabilised in value, regardless of their rarity. Due to shortages, this situation is exceptional, and the mass market should eventually regulate itself. The situation is not the same in the high-end market, where this phenomenon was already observed before the crises. Although scarcity plays a role, it does not explain everything...


Availability

Limited production

What is rare tends to be sought after. Cars are no exception to this rule. As demand exceeds supply, prices rise. In the car industry, there are two types of limited production:

  • Numbered series

  • Time-limited series

In the first case, the number of units produced is predefined. The value tends to increase during and at the end of production. In the second case, the cars are produced for a fixed period, with no limit on quantity. The evolution of the price is more complicated to evaluate. Generally, the value of these vehicles is high before and at the beginning of deliveries before stabilising. However, this evolution depends strongly on the total production, and thus on the pace and duration of production.


Distribution

Some manufacturers use quotas. In this way, each region is entitled to a predefined quantity or percentage of production. Although legally questionable, this strategy regulates the market by reducing it to a regional or national scale.

It may also happen that cars are not sold in certain markets. In such a case, interested parties will have no choice but to turn to the second-hand market and brokers.


VIP customers

Luxury brands select the customers to whom they wish to sell their limited editions. As a result, some people who would have liked to buy these models were not allowed to do so. Sellers take advantage of this situation and ask for premiums.

Carequest car broker Switzerland_Ferrari 488 Pista


Deliveries

Shortages

The automotive industry, among many others, is suffering from shortages for reasons we have outlined in previous articles. The luxury goods industry is of course also affected. As a result, delivery times are extended and production is limited.


Delays

Some customers do not want to wait to receive their vehicle. In these cases, they prefer to pay a surplus on available units or purchase build slots rather than wait. Although this may sound crazy, it can be financially neutral if the buyer resells the vehicle before a mass influx of cars onto the market. In such a case, it allows the buyer to enjoy one of the first models delivered while limiting depreciation.

Carequest car broker Switzerland_2022 Range Rover


Economy

Inflation

The monetary policy measures taken to counter the Coronavirus pandemic have led to the current inflation. It exceeds 10% in several European countries. As a result, prices for new cars are rising. People who secured their purchase orders before this inflation benefit from the situation and can therefore sell their cars at a higher price than they paid a few months earlier.


Interest rate

For years, rates were close to zero. Although they have increased recently, foreign funds are still relatively affordable, making it easier and cheaper to finance more expensive cars.


Stock market

For several years, the stock market and the value of cryptocurrencies have risen to record levels. As a result, many people have been able to amass fortunes very quickly. This effect together with low-cost financing led to an increase in the propensity to consume. Luxury goods were particularly affected.

Carequest car broker Switzerland_Brabus G-Klasse


Conclusion

There are several reasons, some being more rational than others, for paying more for a recent vehicle than when it left the factory. On the one hand, demand for cars whose production is limited in quantity or space and time tends to exceed supply. On the other one, shortages and delays limit the availability of vehicles on the market. Finally, the economic boom of recent years coupled with low interest rates has facilitated access to luxury goods. Currently, inflation is also contributing to the phenomenon.


Are you looking for a rare vehicle and can't find what you want?

At Carequest we have access to many off-market vehicles.



 

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