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Have you tried to buy a second hand car recently?
Have you seen the prices? Unbelievable, eh?
If you have not been in the car market in the last two years, you probably haven’t got a clue what I’m talking about here and are probably not aware of what’s been going on for those of us who need to upgrade our motors - either with a second hand vehicle or even a new one.
In essence, there has been a shortage of semiconductor computer chips across the world.
Firstly, there was a fire at Renesas Electronics in Tokyo in Japan. Renesas is a major supplier of chips to car manufacturers across the world.
Then there was a storm and a severely cold weather spell in Texas, where many chip factories are based, which meant a shutdown of these factories for a time, and this, too, had an impact on the worldwide supply of chips for the automotive industry.
In addition, there were interruptions to the availability of materials such as copper, aluminium and cobalt which also go into cars.
So, what’s the relevance of all that?
Well, all cars now rely on semiconductor chips and these materials to make them work. Today's cars are basically computers on wheels, where the chips are part of the electronics which run engine management systems, the SatNav system, your music, cameras, and pretty much all controls we use in our cars.
What is particularly important to note is that car manufacturers rely on ‘just-in-time delivery’ rather than buying components, such as chips, in bulk and so when the shortage of chips occurred the car manufacturers were particularly impacted i.e. they were not able to ‘finish’ building their cars. I guess that shows how normal, well-oiled supply chains can actually seize up!
(Originally, it was appliances and computers that felt the brunt of the worldwide slow down in the supply and manufacture of chips but this quickly impacted the manufacture of cars worldwide and led to far fewer new vehicles rolling off the production lines).
Jaguar Land Rover (JLR) shut its two main car factories temporarily, due to the shortage of chips and other materials. Ford did the same.
In addition, during lockdown when people were told to work from home that created massive demand for laptops (as well as Xboxes and other games consoles) and, all these devices use, you guessed it, semiconductor chips, which resulted in there being fewer chips, longer waiting times and higher prices in the car industry.
Back to second hand cars: car manufacturers closed their factories until it would become clearer when the chips would become available again and new car buyers realised that they could do one of two things: join an unpredictable waiting list for their new vehicle or buy a second hand one.
Many people decided to buy a ‘nearly new’ second hand car. (Many people, of course, do that as a buying strategy, anyway, as they know that a car that is 12 months’ old will probably have lost at least 20% of the value it had when it was sitting on the garage forecourt).
The shortage of semiconductor chips has meant that fewer new cars have been built and as a result people are upgrading their existing vehicles to second hand cars rather than new cars and this is pushing up the prices of second hand cars to ‘unprecedented rates’, according to the motoring group, the AA.
Research by the AA shows that the price of the UK's most popular cars have increased up to 57% since 2019!
It appears that "nearly new" used cars are now in particularly high demand, according to spokespeople from the car industry.
(My dad was persuaded by his dealer recently to sell back his second hand (insert make and model) as it was cheaper to lease a brand new (insert make and model) from them)!
The AA says that demand for some models - typically 3 to 5 years old - is so strong that they are increasing in value with age! How perverse is that? Historically, the older a car is, the less is its value! How times have changed.
Three to five-year-old Ford Fiestas, the most popular on the AA Cars website, are now valued at £9,770 compared to £7,448 two years ago.
Other examples of price hikes for second hand cars can be seen on the AA’s website where a 3-year-old Mini Hatch in 2021 was 57% higher (£15,367) than a model of the same age in 2019 (£9,811)!
This, again, means that these cars gained in value despite being two years older.
Audi A3s jumped 46.09% in prices since 2019, followed by Ford Focuses (43.11%) which, according to the motoring group, is the 2nd most popular in the UK.
The AA said that the easing of restrictions of the coronavirus lockdown in summer 2020 had "unleashed demand" that had been "pent up" during the early stages of the pandemic.
James Fairclough, chief executive of AA Cars, is quoted as saying that some popular cars were growing in value "even as they sit on the driveway".
"With the exception of houses and some classic cars, things rarely go up in value as they age," he told the BBC.
Peter Smyth, director of family business Swansway Car Dealers, told the BBC "nearly-new cars" were now a "desirable product" because of the slow supply of new ones.
He said "the more expensive cars" on his forecourts such as Audi Q7s and Land Rovers, were "selling the fastest".
"We are selling less cars (sic) for more money," he said. "You cannot replace the stock you have got."
"What you will find is manufacturers will have more supply of luxury cars next year than lower end stuff," he said. "They are going to put the chips in the high-value cars where they make the most margin,” he told the BBC.
In August 2021, the Society of Motor Manufacturers and Traders (SMMT) said second-hand car sales in the UK had more than doubled.
How did this break down?
Well, petrol cars made up most of the sales, with Ford Fiestas, Vauxhall Corsas, Ford Focuses and Volkswagen Golfs being the most popular models.
Mike Hawes, SMMT chief executive, told the BBC that while a buoyant used-car market was "important, as strong residual values support new car transactions", it was "critical we have a healthy new car market to help accelerate fleet renewal by allowing motorists to replace older, less efficient vehicles with the latest, cleanest models".
From https://www.bbc.co.uk/news/business-58465954
During lockdown, many car manufacturers closed their factories due to the shortage of semiconductor chips as this meant they had lots of ‘unfinished cars’ on their premises that they couldn’t sell.
The closing of the factories meant that the number of new cars available for purchase in the UK took a massive hit.
The chief executives of Intel and IBM are also quoted recently as having said that the chip shortage could last two years.
Another consideration is that it apparently takes some time to build factories that can manufacture semiconductor chips - and these factories cost billions of dollars to build.
A further consideration is shipping. Previously, the cost of shipping has not been a major issue because semiconductor chips are relatively small and suppliers can fit lots of them into a single 40 foot container.
But, now, the cost of shipping has mushroomed - again due to the effects of the pandemic. (It is also exacerbated by a rise in the cost of air freight and a major shortage of lorry drivers in Europe. Just a perfect storm, really).
A single 40 foot container from Asia to Europe now cost $17,000 (£12,480), according to George Griffiths, editor of global container markets at S&P Global Platts, compared to $1,500 (£1,101) just a year ago - in other words a ten-fold increase!
The big question for car makers is can they make sure that they are not caught in this situation again in the future if there is a supply shortage.
In addition, car makers are also competing with the consumer electronics sector for those chips that are available.
Some forecasters are saying the impact of the shortage of semiconductor chips in 2020 and 2021 will last for some time to come, so, I would say, enjoy your newly new cars until more brand new ones become available.
-Ends-
Have you seen the prices? Unbelievable, eh?
If you have not been in the car market in the last two years, you probably haven’t got a clue what I’m talking about here and are probably not aware of what’s been going on for those of us who need to upgrade our motors - either with a second hand vehicle or even a new one.
So, ‘what’s the story, morning glory’? (We are a Greater Manchester-based business, after all)
The issue relates to Coronavirus (COVID-19), the pandemic and the response to the latter by most of the world’s Governments instigating lockdowns.In essence, there has been a shortage of semiconductor computer chips across the world.
Firstly, there was a fire at Renesas Electronics in Tokyo in Japan. Renesas is a major supplier of chips to car manufacturers across the world.
Then there was a storm and a severely cold weather spell in Texas, where many chip factories are based, which meant a shutdown of these factories for a time, and this, too, had an impact on the worldwide supply of chips for the automotive industry.
In addition, there were interruptions to the availability of materials such as copper, aluminium and cobalt which also go into cars.
So, what’s the relevance of all that?
Well, all cars now rely on semiconductor chips and these materials to make them work. Today's cars are basically computers on wheels, where the chips are part of the electronics which run engine management systems, the SatNav system, your music, cameras, and pretty much all controls we use in our cars.
What is particularly important to note is that car manufacturers rely on ‘just-in-time delivery’ rather than buying components, such as chips, in bulk and so when the shortage of chips occurred the car manufacturers were particularly impacted i.e. they were not able to ‘finish’ building their cars. I guess that shows how normal, well-oiled supply chains can actually seize up!
(Originally, it was appliances and computers that felt the brunt of the worldwide slow down in the supply and manufacture of chips but this quickly impacted the manufacture of cars worldwide and led to far fewer new vehicles rolling off the production lines).
Jaguar Land Rover (JLR) shut its two main car factories temporarily, due to the shortage of chips and other materials. Ford did the same.
In addition, during lockdown when people were told to work from home that created massive demand for laptops (as well as Xboxes and other games consoles) and, all these devices use, you guessed it, semiconductor chips, which resulted in there being fewer chips, longer waiting times and higher prices in the car industry.
Back to second hand cars: car manufacturers closed their factories until it would become clearer when the chips would become available again and new car buyers realised that they could do one of two things: join an unpredictable waiting list for their new vehicle or buy a second hand one.
Many people decided to buy a ‘nearly new’ second hand car. (Many people, of course, do that as a buying strategy, anyway, as they know that a car that is 12 months’ old will probably have lost at least 20% of the value it had when it was sitting on the garage forecourt).
The shortage of semiconductor chips has meant that fewer new cars have been built and as a result people are upgrading their existing vehicles to second hand cars rather than new cars and this is pushing up the prices of second hand cars to ‘unprecedented rates’, according to the motoring group, the AA.
Research by the AA shows that the price of the UK's most popular cars have increased up to 57% since 2019!
It appears that "nearly new" used cars are now in particularly high demand, according to spokespeople from the car industry.
(My dad was persuaded by his dealer recently to sell back his second hand (insert make and model) as it was cheaper to lease a brand new (insert make and model) from them)!
The AA says that demand for some models - typically 3 to 5 years old - is so strong that they are increasing in value with age! How perverse is that? Historically, the older a car is, the less is its value! How times have changed.
Three to five-year-old Ford Fiestas, the most popular on the AA Cars website, are now valued at £9,770 compared to £7,448 two years ago.
Other examples of price hikes for second hand cars can be seen on the AA’s website where a 3-year-old Mini Hatch in 2021 was 57% higher (£15,367) than a model of the same age in 2019 (£9,811)!
This, again, means that these cars gained in value despite being two years older.
Audi A3s jumped 46.09% in prices since 2019, followed by Ford Focuses (43.11%) which, according to the motoring group, is the 2nd most popular in the UK.
The AA said that the easing of restrictions of the coronavirus lockdown in summer 2020 had "unleashed demand" that had been "pent up" during the early stages of the pandemic.
James Fairclough, chief executive of AA Cars, is quoted as saying that some popular cars were growing in value "even as they sit on the driveway".
"With the exception of houses and some classic cars, things rarely go up in value as they age," he told the BBC.
Peter Smyth, director of family business Swansway Car Dealers, told the BBC "nearly-new cars" were now a "desirable product" because of the slow supply of new ones.
He said "the more expensive cars" on his forecourts such as Audi Q7s and Land Rovers, were "selling the fastest".
"We are selling less cars (sic) for more money," he said. "You cannot replace the stock you have got."
"What you will find is manufacturers will have more supply of luxury cars next year than lower end stuff," he said. "They are going to put the chips in the high-value cars where they make the most margin,” he told the BBC.
In August 2021, the Society of Motor Manufacturers and Traders (SMMT) said second-hand car sales in the UK had more than doubled.
How did this break down?
Well, petrol cars made up most of the sales, with Ford Fiestas, Vauxhall Corsas, Ford Focuses and Volkswagen Golfs being the most popular models.
Mike Hawes, SMMT chief executive, told the BBC that while a buoyant used-car market was "important, as strong residual values support new car transactions", it was "critical we have a healthy new car market to help accelerate fleet renewal by allowing motorists to replace older, less efficient vehicles with the latest, cleanest models".
From https://www.bbc.co.uk/news/business-58465954During lockdown, many car manufacturers closed their factories due to the shortage of semiconductor chips as this meant they had lots of ‘unfinished cars’ on their premises that they couldn’t sell.
The closing of the factories meant that the number of new cars available for purchase in the UK took a massive hit.
So what’s going to happen to the price of second hand cars over the next one to two years?
Daimler chairman Ola Källenius is predicting that the manufacture of new cars globally will continue to be impacted adversely in 2022 and 2023 even though semiconductor chip manufacturers try to ramp up their production chains.The chief executives of Intel and IBM are also quoted recently as having said that the chip shortage could last two years.
Another consideration is that it apparently takes some time to build factories that can manufacture semiconductor chips - and these factories cost billions of dollars to build.
A further consideration is shipping. Previously, the cost of shipping has not been a major issue because semiconductor chips are relatively small and suppliers can fit lots of them into a single 40 foot container.
But, now, the cost of shipping has mushroomed - again due to the effects of the pandemic. (It is also exacerbated by a rise in the cost of air freight and a major shortage of lorry drivers in Europe. Just a perfect storm, really).
A single 40 foot container from Asia to Europe now cost $17,000 (£12,480), according to George Griffiths, editor of global container markets at S&P Global Platts, compared to $1,500 (£1,101) just a year ago - in other words a ten-fold increase!
The big question for car makers is can they make sure that they are not caught in this situation again in the future if there is a supply shortage.
In addition, car makers are also competing with the consumer electronics sector for those chips that are available.
Some forecasters are saying the impact of the shortage of semiconductor chips in 2020 and 2021 will last for some time to come, so, I would say, enjoy your newly new cars until more brand new ones become available.
-Ends-
