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  • Writer's pictureSylvain Tornare

Will car prices drop?

Buying a car has never been so expensive. Prices are reaching historic highs on both the new and used car markets. After several months of growth, the world economy is in a precarious situation. But how will this change affect the car market?

Carequest Car Broker Switzerland, person showing dollar notes

In recent months, the combination of a strong global economy and various shortages has led to a general rise in prices. One of the best examples of this has been automobiles. However, this trend seems to be coming to an end. Falling stock market, inflation or rising interest rates are now part of everyday life and put pressure on the economy.


In this article, let's find out how this could affect the prices of new and used cars.


Should we expect prices to drop?

Fuel price

The price of a litre of petrol has risen by almost a third in one year and by around two thirds in two years, breaking the records of 2008. For several months, the price per litre has been above two francs. This affects the type of cars purchased.


Electric or fuel-efficient vehicles benefit from this situation, while cheap, high-consumption models may suffer the opposite effect. However, it is relatively unlikely that the luxury and sports market will be affected. Generally, people buying these types of vehicles are not particularly sensitive to fuel prices.


Increasing interest rates

Car financing, which for years cost almost nothing because of low rates, is becoming more expensive. In addition, rising mortgage rates reduce disposable income, which can impact car purchases.


Insecurity in the financial markets

The purpose of raising interest rates is to counteract inflation. This method slows down consumption and makes investment more expensive. As a result, the stock market tends to fall.


Currently, the financial markets are in crisis. The majority of indexes have fallen. Cryptocurrencies are in the red. For a part of the population, this represents a drop in purchasing power. The luxury market is likely to be particularly affected by this trend.



Should we expect stable prices?

Production stops

Several industries, including car production, are still suffering from shortages. Factories are therefore not operating at full capacity. As a result, market supply remains limited. Experts, including J.D. Power and KPMG, predict a return to normality between late 2022 and late 2023. Recent news supports this prediction.


Pandemics

The pandemic has put a strain on supply chains. This situation has not been fully resolved. In some countries, for example China, lockdowns are still relatively common. This has resulted in factory closures and shortages. If the cases of Coronavirus (or monkeypox) were to increase, a new supply shortage could not be excluded.


Inflation

For several weeks, a general increase in prices has been observed. Although Switzerland has been rather spared, many countries are showing record values close to 10%. From this point of view, car prices could remain high despite the monetary policy measures undertaken by governments and/or central banks.


Cost of Ownership

The costs of ownership may remain the same regardless. As interest rates and fuel prices rise, the total costs of operating and owning a vehicle increase. Even if purchase prices were to fall, it might not be enough to offset those increases fully. In summary, even if the purchase should cost less in the medium term, the increased costs of operating and owning the vehicle could keep the total bill high.



Conclusion

Although the situation is not entirely clear and depends mainly on the stability of supply chains and the global economy, it would appear that a price decline is expected within 6 to 18 months. However, this does not necessarily mean a return to 2019 price levels. In addition, the decline in new car production is expected to create a shortage in the used car market in the relatively short term.


Not all segments should be affected in the same way. The luxury market, in particular for models whose current prices are exaggerated, should see a correction in the short to medium term, whether they are new or used. This should also be the case for the mass market as soon as the supply chains are restored. However, rare and limited vehicles with historical and emotional significance could remain relatively stable, as not only economic factors influence their price.


The easiest solution remains to work with Carequest! Thanks to our network, we will find the desired vehicle within the required budget!



 

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