Rising new and used car prices create ‘Carflation’
Just look around, urges Iain Robertson, since the onslaught of the pandemic, the rich are getting richer and retail prices are skyrocketing, some of which is surely by specious means, as perceived profitability levels have been pinched painfully.
As an ‘ordinary’ and habitual shopper, not one induced into the panic buying of some, I was not alone in observing the far from gentle upwards hike of fresh produce and other essentials’ prices, as the first ‘lockdown’ occurred across our nation. Even though retailers questioned about stock shortages denied that very few existed (except perhaps toilet paper!), they were quick to react in other ways. Among the tactics employed was a massive reduction in suppliers, in some cases by more than 40%, as r.r.p. was ditched and shelf barkers showed price increases of at least 5% but as much as 10% for some products like fresh fruit juices and even traditional loss-leaders like bread and milk.
It was a case of ‘bugger the choice, protect the profits’. In some ways, the lightning speed of major retailers’ reactions should have satisfied their shareholders and the banks beyond belief. Okay, circumstances changed a lot and investments in delivery services took priority, with new vehicles being leased and staff shortages in some areas being offset by a need for new packers and drivers on a local level, which would and did lead to internal conflicts. Yet, the groceteria market has suffered very little pain in turnover terms.
On the other hand, confronted by massive reductions in consumer traffic at branded dealerships and around the used car trade, motorcar price hikes have been even more noticeable. A good friend of mine owns a 4×4 vehicle trade centre in Lincolnshire. His knowledge of both new and used motor trade is extensive but even he has been shocked by the unrelenting upwards spiral in values, in some cases for surprisingly mundane machinery.
Upon returning to a modicum of ‘conventional’ trading, as the first ‘lockdown’ period ended, he was determined to hold back on his dealings, rather than fall prey to what he perceived was a short-term demand issue. However, he was forced into accepting a new reality that even online auction prices (the safer way to trade) were being pimped ever higher, as one-by-one his bids proved insufficient by, in some cases, 15% to 18% premiums.
According to the Vehicle Remarketing Association (VRA), used car prices will continue at their steeper levels through to the end of this year. In an industry that is naturally quite myopic, daring to crystal-ball gaze beyond 2021 is still a novelty but one tinged with a reality that stock shortages are insisting on higher prices that impact on consumer affordability in a vicious circle that can harm garage profitability irreparably.
The irony is that retail customers hardly question the situation and seem almost too willing to accept their trade-in valuations and settle the higher listed prices for replacement vehicles. It is unprecedented. Strangely, stock turnaround has accelerated and most dealers/traders have joined the price-hiking phenomenon, in the process improving their financial bottom-lines considerably. A further irony exists within the franchise scene, where a couple of years ago clinging onto stock older than three years of age and not of their stated marque was a rarity. However, part-exchanges of upwards of a decade old are now being retailed on franchise forecourts, the dealers blaming thinning supply for the situation.
The stock shortages are exacerbated by the impact of the past 16 months of pandemic on the company car sector. With many previously mobile staff resigned to a furloughed existence of working from home, fears of paying excess mileage fees have diminished and been replaced with extended lease programmes, as wear and tear is now markedly less than it could have been. For those firms sticking rigidly to term replacements, lower mileage vehicles are still hitting the trade, which also hikes up prices unrealistically.
According to a recent survey carried out by Moneybarn, new car retail prices have escalated at a rate significantly greater than salary increases. Its intriguing findings, measured over the past decade, highlighted that an average UK salary of £21,100 in 2011, had grown to £25,780 today. The company even coined the term ‘Carflation’ as a means to elucidate their point. Of course, attempting to find vehicles on sale today that might be compared with those of a decade ago was a more arduous task, not least because of technology and safety advancements, let alone the customary six years’ replacement strategy employed by most volume carmakers. Yet, the near-impossible was achieved.
With an increase of 117.3%, the Jeep Wrangler was deemed the greediest at more than twice average annual earnings, rising from £22,515 in 2011, to £48,920 today. Only just behind it is the Peugeot 3008, which retailed for £17,195 a decade ago, to £37,310 today (117% increase). Third in the chart was another Peugeot, the slow-selling 508 (95.2%), which suggests that the recently formed and Sino-funded Stellantis umbrella Group that brings Peugeot, Citroen, DS, Vauxhall, Opel, Fiat, Alfa Romeo, Lancia, Chrysler and Jeep products together (many of which figure in the Top 86 price-hikers) is chasing profits for its shareholders with gay abandon.
A near doubling of list prices has occurred with some Mercedes-Benz, Hyundai and Volkswagen models over the past ten years, although the figure drops for popular models like the VW Polo (82.8%) and VW Golf (71.6%). Volvo joins Hyundai and Honda as major price-hikers, making you wonder about the sustainability of their programmes. On the other hand, confronted by the 2030 horizon of total EVs, you can guarantee that much of the upward spiral is to close the huge value disparities that exist between them and their current ICE alternatives, because no manufacturer is ever going to cut its retail prices!
As ever, ‘caveat emptor’ rings true. Car buyers and lessors are being stupid by not questioning such unprecedented price hikes. My advice is to buy second-hand. There are plenty of ex-demonstrators being squirreled away by carmakers on disused airfields all over the UK. Release them and some of the prices will slump benefiting the consumer…which is also an inherent fear for the motor industry.
