If you have visited a car showroom in recent months, you will have noticed something of a trend amongst the vehicles on display. Vehicle prices have been steadily and steeply on the rise in the past year, with sought-after brands like Mercedes and Hyundai boasting retail price increases of up to 54%. Across the industry in Australia, new car prices have risen by an average of 22%. But why is this, and are prices due to come back down in 2023?
The Rise in Car Prices
The global automotive industry has, like every other industry, experienced great upheaval as a result of – and in the aftermath of – the coronavirus pandemic. The breakdown of the international supply chain crippled short-term sales and disrupted manufacture. However, a much larger industry issue emerged in the form of a global semiconductor shortage.
The shortage of semiconductors rendered the production of crucial automobile ECUs impossible, slowing production to a near-halt. As a result, few new cars were making it to market, even as demand remained relatively high for a pandemic-slowed market. This caused the price of used vehicles to increase significantly.
Since the coronavirus pandemic, new economic issues have troubled nations around the world. Continued disruption to supply chains has seen national rates of inflation rise in Australia, the UK, and many countries in Europe. International trade has been hampered by severe currency fluctuations, which forex traders have pinned to the increased economic isolation of key trading partners like the UK.
Will Prices Return to Normal?
While other pressures in the form of the semiconductor shortage have begun to ease, economic pressures remain for Australia and the wider world – and demand remains unusually high. Indeed, in September 2022, new car spending increased by 13.3%.
While the above figure was somewhat boosted by the completion of historic car orders, it nonetheless highlights an important consumer trend, and indicates the direction the automotive market could be taking. With demand high for both new and used cars, there is no incentive for showrooms and sales platforms to ‘sweeten the deal’ for consumers.
Where discounts and offers were commonplace with new car sales, today retailers are much more likely to charge full price. Manufacturers have justified their price rises with continued demand, and will likely maintain their course going forward; whether retailers restart discount programmes depends on the temperature of the market.
How Consumers Are Responding
But how are consumers responding to this? As the above figure shows, the appetite for car buying is on the rise in spite of the trend in rising prices. Shrewd buyers are investigating finance options to offset the sheer cost involved in buying a new vehicle outright, with bank loans proving a more equitable route than car financing from dealerships.