Cars are meant to depreciate in value as soon as you drive them off the forecourt. Yet prospective used car customers may have noticed something strange: prices are going up. I asked David Bailey, professor of business economics specialising in the automotive sector, why.
I bought my car for £1,850 in 2017. It’s currently on sale for £2,400. Has anything like this happened before?
No, this is unprecedented. In some models the secondhand car can be more expensive than its brand new equivalent.
Because of the current microchip shortage, cars aren’t being built. So if you’ve got a car that’s nearly new, in some cases that’s worth more than being on the waiting list for six months to get it brand new.
The prices of used cars have been going up for a while, though, right?
Yes. When Covid hit in 2020, car manufacturers shut down but demand was high, especially as people didn’t want to use public transport. That drove used car prices up.
As the proud owner of a no-frills car, do we really need microchips – who needs bells and whistles when you can work your biceps on a roll-up window?
Modern cars have hundreds of chips in them, for everything from adjusting your seat to air conditioning. Now, carmakers are trying to take chips out because of the shortage, but it will take time. In some cases, they’re even going back to an analogue dashboard.
That’s what I have! Wow, I can’t believe my little pootler is about to become top of the range. Quite the U-turn. But won’t microchips be back to normal soon, now that Covid closures are in the rear-view mirror (sorry)?
Well, that was only the initial effect. What car manufacturers have now is long Covid. So when the car industry cancelled its chip orders because it had closed, chip manufacturers reoriented to do other things: video games, TVs, electronics. When the car industry restarted production, it was at the back of the queue. And things have been further knocked by the war in Ukraine, where 50% of the high-grade neon used to make chips comes from.
How is this going to affect our societal shift away from cars?
Right now, we have high petrol prices, cars going up in price and expensive insurance for young people. So there is a question mark about whether they want a car when they can simply hop into an Uber or on an electric scooter. We’re seeing the first signs of a decline in car ownership among the young, particularly in the US.
Great for the planet, though it’s a bit of a shame tomorrow’s youth won’t get to experience the cheap thrill of doing a doughnut in an empty supermarket car park. What about electric cars?
One in six cars registered in the early part of this year were plug-ins. So we’re already seeing a big shift. We’d hope that the price of electric cars would come down as batteries get cheaper through companies making more of them, in which case we’ll see electric cars take off through the middle of this decade. I think after about 2025, there won’t be much reason to buy an internal combustion engine car if you’re buying new. And in the long term, say the back end of the 2030s, we might be looking at autonomous cars. Why own a car at all if you can summon a driverless taxi?