While you may have heard that the market insanity is due to the chip shortage creating such high demand and the supply chain is to blame for the lack of new inventory, there is a lot that isn’t being said that can contribute to the market being at the state it is in now.
A few points to note:
- Cars, themselves, are changing mechanically, turning to hybrid and electric power. This means all motor cars are disappearing which drives enthusiasts to want to pick up heritage driven cars. Others know this so they raise the price to meet the desire of others.
- There is more money in the world now than ever before so of course demand is up for luxury products.
- Supply shortages do exist, but it isn’t a “chip” issue. It is EVERYTHING. Parts aren’t being manufactured like they used to be. But also manufacturing NEW cars has been significantly cut due to labor shortages and Covid regulations in countries around the world responsible for building these exotic cars.
All this and more caused a two month issue to trickle into a two year issue and ultimately re-aligned our US depreciation model to the EU depreciation mode for luxury and exotic cars.
In America, we are a culture of consumerism, we buy and buy, creating a constant flow of money and opportunity for the markets.
Which has enabled the lending system to allow this type of behavior through creative financing options such as large down payment, longer loan terms, and even leasing options.
This constant movement of cars also creates a surplus in the market so that when there are multiple cars at play, there is a sense of being able to negotiate and become competitive with the sellers/dealers to see who will sell for what.
So in order to keep that flow going, discounts and price cuts are a very real expectation for consumers.
However, with the supply shortage effecting nearly every single brand of cars, dealers are NOT inclined to give any discounts or negotiate anything off these cars even if they sit in their showroom for 6-12 months.
Therefore, used cars aren’t depreciating because NEW cars are going for their MSRP, or sometimes even OVER sticker.
But in Europe, these things do not happen.
New cars come on an order/allocation basis ONLY.
Meaning manufacturers aren’t pumping dealers with 20-200 demo cars to simply sit on lots to be used as large mechanical negotiation tool.
So if you aren’t able to get a new car allocation in Europe or your production time is 10-12 months from date of order placed, you are forced to buy a car USED.
Also in Europe cars are bought and held for longer periods of time as the ease of financing and leasing is not available.
So depreciation and competitive cost are not as apparent as they are in the US markets.
The world is also shifting monetarily too.
Inflation is ever apparent because what $100k could buy you three years ago can’t be touched for less than $150k now.
Also, surpluses of cash are flooding into the market due to new digital currency becoming more widely accepted and utilized by the masses than ever before.
Now you are probably thinking “Thanks for this info, but where is the market heading”.
Well in Aprilm we are going to see a massive slowdown in car buying as tax bills become the thing everyone has to spend their money on. (Sorry to the bitcoin millionaires out there, but gotta pay uncle Sam).
Though this time, the market will balance itself out a bit, some will drop back to a more sensible dollar while others will continue to hold strong or even go up come Summer 2022.