Herb McMillan For Anne Arundel County Executive
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“Nationals October 2019

Can’t Stop Rising Car Prices? What to Expect in 2022

| January 14, 2022, 08:00 AM

In 2021, due to the shortage of microchips, both new and used cars have significantly risen in price. The rise in price has affected both European and American “used cars”. But what to expect from next 2022? Spoiler alert: prices will continue to rise. All representatives of large companies think so.

Market participants and analysts say that the defining market factors of growth are the shortage of automotive chips, which caused disruptions in production (the global decline in production due to a shortage of chips is estimated at almost 8 million cars) and an increase in producer prices. The aftermarket experienced both a peak in demand from buyers desperate to buy a new car and a failure in supply due to the fact that people do not want to sell the car without a guarantee that they can replace it with a new one.

Luxury “in reserve”

Despite the general trend, the prices for luxury cars have hardly increased. According to analysts, the cost of Aston Martin, Ferrari, and Maserati has remained unchanged. Experts associate this indicator with the specifics of sales of such machines. From this point of view, this segment remains a profitable investment, and no wonder luxury car purchases are on the rise in Maryland. If you were going to buy a Rolls Royce, feel free to take it. Since this is a serious purchase, you can arrange a vacation for yourself, fly to a distant hot country, rent Rolls Royce and experience all the delights that it can give you against the backdrop of beautiful landscapes.

For example, in Dubai, rental services are well developed and in demand, they can satisfy the most sophisticated tastes and various budgets. If you don’t want to be bothered with the choice of an expensive car, feel free to go there for tests.

Firstly, such cars are sold in very small volumes, in contrast to cars of lower classes. Therefore, the dealer always has a stock in the warehouse. When the crisis began last year and the exchange rates jumped sharply, car dealerships brought in more expensive cars than the demand demanded, and now they are selling even those cars that were then brought in at the old prices.

The second point is that such cars are not sold at the prices indicated in the price list. Each machine is equipped with a large number of additional options, the cost of which is often more than 10-15% of the cost of the machine itself. It turns out that even if the price remains the same, the client pays much more for it.

Thirdly, after the boom in demand for the luxury segment in 2020, dealers are now faced with a lack of customers, so they attract buyers, restraining the rise in prices.

What’s happening

In the United States, where the rise in the price of cars has become one of the main factors of inflation, dealers are encouraging pre-orders and refusing discounts – but there are no massive reports of markups. In conditions of a physical shortage and rising prices, buyers went to the secondary market, after which used cars rose in price significantly more than new ones – by 32%.

The US dealer markup now averages about 3-8% to the MSRP, while it was negative last year. This, however, does not exclude surcharges of up to 100% for the most scarce cars.

Liquified Creative Annapolis

The market in the US is partially stabilized until recently by almost forbidden (for antimonopoly reasons) direct sales of manufacturers. So far, they have been legalized and are going to legalize already 12 states, in which independent dealers are threatened with complete exclusion from the sales chain. The pioneer here was Tesla, which was suing for the right to sell cars directly in most states, and the pandemic only accelerated this process.

Disappointing forecast

In Europe, car sales by October 2021 fell for four months in a row, and in October they decreased by 29% year-on-year to 800 thousand. However, analysts expect that this is the lowest point of the car market, and already in 2022, the situation will begin to improve. General Motors is also counting on the fact that the deficit will be overcome in the new year.

Analysts do not expect a quick fix for the semiconductor situation and expect prices to rise by another 3-5% in the coming months. And someone even believes that the “buyer’s market” will not return earlier than the second quarter of 2023, and in 2022 cars may rise in price by 15% or even 25-27% under unfavorable circumstances. It is also noted that a car becomes an investment: it happens that a purchase does not get cheaper at the exit from the salon.

Dealers, however, will act “to the best of their insolence and ambition” until the deficit disappears completely. If there is a surplus of cars, dealerships will accumulate stocks of unsold cars due to huge markups and automakers will begin to put pressure on them. But while the turnover of dealer warehouses is already high, which means that they can increase their profits in different ways.

 Conclusion

From what is clear today, the issue with the production of components for new cars has not been resolved, and it will hardly be possible to solve it in the near future. This means that the production of new cars will still be in short supply. Consequently, the secondary market will continue to grow, while the US and European markets will continue to be in demand.

Against the background of rising prices, we assume stable demand or even its growth. An atypical, and therefore even more interesting situation.

Category: Local News, NEWS

About the Author - Stephanie Maris

Stefanie is a local blogger and social media content marketer from Maryland and most recently a wife and a mother. She has an unhealthy obsession with puns, sarcasm and caffeinated beverages.

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