The car market is a difficult one for anyone to navigate these days. Many people that are either nearing the end of their current car finance or lease agreement – or who have run their motor into the ground – are finding it troublesome to understand which fuel type, make and model to go for next. It’s almost like we need a sat nav that can tell us the best journey to take when buying a car. The cost of running a vehicle is after all the second largest after rent or mortgage payments for most of us. Given how problematic such a decision is we think out loud below on a range of impactful issues and end on some conclusions and suggestions.
Not only is car technology moving so quickly – helped by targeted incentives for manufacturers to invest in green. But the technology in different parts of the automotive market is moving at different speeds. New electric vehicles (EVs) can now travel a long way on a single charge helping to reduce ‘range anxiety’, but there are different types of car charger and not enough public charge points installed. Not so much of a problem if you own your own property, can park the car on a driveway and install a domestic charge point. But not helpful for the millions that need to rely on public installations. There is talk of new types of battery technology and wireless chargers being tested and you find yourself in that familiar territory, as was the case with PCs in the 1990s (if you’re old enough) or mobile phones – “shall I go for an EV now or make the transition further down the line?”
To really understand the local car market in the UK we have to consider the bigger picture. The surreal, anxious and tragic last couple of years have created chaos in markets as humanity battles with an invisible viral force. Now an unfathomable and deeply emotive war in Ukraine has created a humanitarian and global security crisis.
Covid-19 and freak weather
Covid-19 led to some very surprising consumption behaviours and big impacts on the supply of cars and car parts. The term ‘semiconductor crisis’ has been all over automotive news for a long time, with the shortage of micro-chips partly due to production slowing or stopping during the pandemic. But also due to extreme winter weather in the United States (another sign of the times) a year ago, which led to several factories in Texas losing power. The lack of chips has been the main factor behind those very long lead times for new cars to be built. Every new car requires a mass of them to function properly, with even more found in electric vehicles. The short supply of new cars has meant there are less used cars coming into the market. The pandemic created pent-up demand for cars and a new substitution effect – where those concerned about exposure to the virus on public transport gave up the bus and train and bought a commuter car. The last couple of years has seen, give or take a few lockdown blips, a sustained period of continuous high demand for cars, but low supply.
Ukraine and Russia
Ukraine and Russia are huge countries which means that given they occupy a large percentage of the global land mass they contain a lot of natural resources. We have heard about oil and gas supply and related sanctions in the news. But there are many metals that are mined in these countries too that are used to produce car parts. There are also a number of Ukrainian and Russian suppliers that can no longer produce and/or export their products to car makers in other markets. So manufacturers are starting to advise their customers that their new cars will take longer to build because of parts other than chips not being available. This will likely keep used car prices high for longer than expected. Indirectly the conflict in the Ukraine and the after effects of Covid-19 have created huge price increases in fuel and energy which in turn is pushing up the prices of many other products.
Has going green become less important?
Things are tough on both the economic and environmental front. The cost of living crisis has made EVs more difficult to consider as they are more expensive to buy or finance. Whilst petrol prices have massively increased so have electricity prices. EVs are difficult to get hold of for the reasons provided above. So its not surprising that recent Auto Trader data has shown that only 16% of car buyers have searched for EVs in February compared to 26% last September. The reduction in the EV grant to £1,500 has also not helped matters (it used to provide up to £5,000 depending on the vehicle).
So when considering all of the above these are our thoughts and suggestions for those considering their next car purchase.
Sell and finance or lease – selling a car and then financing or leasing a new one presents a significant money making opportunity currently. Over the last 18 months car prices have increased considerably – as much as 30-40% in some cases. Many drivers have cashed in on this equity by selling their car and moving into a new finance or lease agreement. Even if the car being sold is financed, the outstanding finance can be settled and the customer can pocket the difference or put this towards a new car (so long as the finance provider is involved in the process). The challenge is finding the right new car that can be picked up or delivered soon.
Private sales may present bigger opportunities – buying from a private seller can always provide an opportunity if you know what you are looking for. But in the current expensive used car market there may be some bigger opportunities here so long as you have undertaken a Total Car Check Gold Check and considered our buyer guide. There are many private sellers out there that want to get rid of a vehicle quickly due to a variety of reasons. Bargains will be out there and if you’ve done your homework you may end up paying less than what they are worth.
EVs are not going away – the UK Government, and most other states around the world, have committed to targets for phasing out combustion engine vehicles. It is therefore unlikely that a difficult economic period will affect the momentum towards net zero. The Ukraine conflict has reinforced the need for countries to rely less on oil and gas and improve energy security. Whilst supply is short there are cheaper new EVs that are available for delivery soon. There are also specialist used EV retailers that have popped up in the UK that can assist and even some available from private sellers. But do your homework first! It’s much easier and cheaper to run an EV if you have your own home installed charge point. If it’s a used EV you need to ensure the battery holds its charge (capacity) and that you have all the necessary accessories supplied to ensure you can run the car.
Try a plug-in hybrid before moving to EV – although many manufacturers now seem to be focused on introducing fully electric vehicle models there are still new and used plug-in hybrids available. These models bring more fuel economy, less tax costs whilst introducing the need to charge without being solely reliant on it. If you are unsure about EVs, plug-in hybrids could provide a stepping stone without completely moving away from the internal combustion engine.
Consider road tax risks – there is a lot of conflict relating to the public purse currently. Putting up taxes is difficult politically in a cost of living crisis, but the Government is short of funds following Covid and it seems to be committed to the NI increase coming in soon. Increasing road tax charges (vehicle excise duty), under the current CO2 emissions based scheme, provides an incentive to get consumers to switch to EVs and generate income for the Government. It may well be something Westminster seriously considers as we get closer to 2030, prior to introducing a new type of road pricing tax. So if you are buying a petrol or diesel car make sure its emissions are relatively low. A cleaner vehicle will also mean you avoid congestion and clean air zone charges in some of the big cities.
Reliability – an obvious one, but reliability of a vehicle may become even more important if new parts continue to be difficult to come by due to global supply chain issues. Even if you are covered by an extended warranty or maintenance agreement you don’t want the car to be with a garage for weeks on end.