Semiconductors – is the used car crash coming?

The longer-term prognosis is projected to last until into 2023, but does this mean that used car prices will remain at their current, inflated level?

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As anyone working inside the car trade already knows, things are little crazy at the moment. New cars are in short supply, cheap cars no longer exist, buyers aren’t haggling, and used car values are higher than ever.

In October 2021, the average price of a used car topped £9,000 for the first time in the UK – a record and also a 16% increase since the start of the year. James Baggott, Founding Editor of Car Dealer Magazine, said: “Used cars are at an all-time high because demand is at an all-time high. New cars aren’t easy to get. There are waiting lists with most manufacturers. So used values have rocketed across the spectrum.”

Used car dealers are asking strong prices

It’s not just expensive cars that are rocketing in value either. Demand for cars below £2,000 has shot up, with many of them in the hands of new car customers purchasing a ‘stop gap’ car while waiting a few months for their new one to roll off the line.

“In every aspect of the used car market, from nearly new stock at main dealers to under the arches backstreet dealers, prices are high and stock is in short supply,” added Baggott. “Used car dealers are asking strong prices – and they’re getting them. It’s a seller’s market.”

The reason for the trend is a global shortage of new cars, led by a shortage of semiconductors – microelectronic components seen in everything from games consoles to heavy goods vehicles. The reason you have to wait nine months for a new Range Rover Velar is the same reason there won’t be a PlayStation 5 under the Christmas tree this year. And while it won’t last forever, it’s not going to go away any time soon.

The longer-term prognosis

IT and systems research company Gartner has projected a best-case scenario that sees semiconductor availability returning to normal at the end of 2022’s second quarter, or potentially the end of the same year, depending on market forces and global production capacity.

“The shortage will severely disrupt the supply chain and will constrain the production of many electronic equipment types in 2021 and beyond,” said Kanishka Chauhan, Principal Research Analyst at Gartner. “Foundries are increasing wafer prices, and in turn, chip companies are increasing device prices. There are capacity constraints and shortages for substrates, wire bonding, passives, materials, and testing, all of which are parts of the supply chain beyond chips. These are highly commoditised industries with minimal flexibility or capacity to invest aggressively at short notice.”

This year, the Society of Motor Manufacturers and Traders reported a ‘desperately disappointing September’ as new car registrations tanked by more than a third (34.4 per cent) to just 215,312 – a worse result than last September when Britain was still feeling the hardest impact of the coronavirus pandemic.

And it’s the ongoing shortage of semiconductor microchips that affects vehicle availability the most, according to SMMT chief executive Mike Hawes. He said: “Despite strong demand for new vehicles over the summer, three successive months have been hit by stalled supply due to reduced semiconductor availability, especially from Asia.”

Although that strong consumer demand might be seen as a positive, the longer-term prognosis isn’t exactly pretty, with semiconductor supply issues projected to last until at least 2023, affected by further lockdown activity earlier this year in Malaysia, which supplies around 10 per cent of the world’s semiconductors – commonly found in car ECU, security and infotainment systems.

Bigger gains in the short term

What this means, then, is that used car prices will remain at their current, inflated level for a good while yet – potentially even seeing bigger gains in the short term. But it’s not all good news.

Joe Fisher from March, Cambridgeshire, runs a used car site specialising in stock below £10,000. “We’ve seen a huge increase in demand this year and at first it was good for business,” he said. “But it’s getting harder and harder to find stock. Plus, the prices of auction stock have risen, there’s more demand for buying privately than there ever has been before, which also pushes prices up.

“If I do buy cars cheaply, to at least keep the stock coming through, I tend to buy cars that are below my usual standards, which pushes my rectification costs up to make them suitable for sale. The increase in used values isn’t the licence to print money that people think it is.”

 

— Ends —

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