The global shortage of new cars is causing huge delays for anyone who wants to order one, and turning the second-hand car market on its head.
In some cases, second-hand models have become more expensive than almost identical brand new ones.
Autotrader, a used car magazine said that second-hand car prices were 28.6 per cent higher last month than a year ago — a record leap. More than 25 per cent of the vehicles that were less than 12 months old on the Autotrader platform cost more than new versions.
“There have been more than a million fewer cars registered than expected and, in simple economic terms, demand has outstripped supply,” said Derren Martin from Cap-HPI, a car valuations agency.
“Whether you’re looking to buy a new car or a used car, expect to pay more for it now than you would have done last year.”
Advertisement
So what should you do if you need to buy a new car?
Does it have to be new?
If you desperately want a new car then you need to think carefully about how long you are prepared to wait for one.
New cars have been in short supply because of a global shortage of the semiconductor microchips that are essential to their operating systems, triggered by factory closures during the pandemic.
Cap-Hpi analysed the average forecourt prices of the UK’s five most popular car ranges in the year to December 8. It found that a new Mini Cooper hatchback had gone up £300 (1.2 per cent) to £26,272.50.
A Vauxhall Corsa was up 18.3 per cent to £23,142.50 and a Tesla Model 3 went up 2 per cent to £50,990.
Advertisement
A Hyundai Tucson was 8.6 per cent more expensive, rising to £35,395, while a Ford Focus went up 6.2 per cent to £30,955.
But it is not so much the price rises, as the waiting times to get hold of some of these vehicles that is putting off buyers.
Keith Adams, editor of the car valuation website Parkers, said you can expect to wait 13-16 weeks for a new Mini Cooper, ten weeks for a new Vauxhall Corsa or Hyundai Tucson, more than four months for a new Ford Focus and five months for a new Tesla.
Car manufacturers are, unsurprisingly, coy about which models have the longest waiting times and do not publish statistics. Adams said Jaguar Land Rover is really struggling to assemble certain models because of the microchip shortage, such as the E-Pace, which typically sells for £30,000.
According to a briefing note sent to leasing firms in the summer, the carmaker said that there were one-year waits for the E-Pace, Discovery Sport and Range Rover Evoque models.
What about second-hand cars?
Advertisement
If the long waits for a new car are putting you off and you’re considering buying a second-hand car instead, then there is bad news: so is everyone else.
Cap-HPI looked at the annual changes in price of the second-hand version of the five most popular cars. It used an example of a car that was registered in September 2019 and had 10,000 miles on the clock, comparing average prices on December 8 last year with the same day this month.
It found that a second-hand Mini Cooper hatchback was now £4,869 more expensive — rising by 32.3 per cent to £19,950.
A second-hand Vauxhall Corsa went up 4.7 per cent to £13,290 and a used Tesla Model 3 went up 8.7 per cent to £45,125,
A Hyundai Tucson increased by 23.7 per cent to £21,317 and a Ford Focus went up 31.7 per cent to £20,191.
Advertisement
The problem with second-hand cars is that when the supply of new vehicles returns to normal, their price is likely to fall sharply. If you buy now, you may well be paying a record price. You could wait for prices to fall, but it is not clear when the supply issues will be fixed.
“For anyone thinking prices are going to crash back down to earth early next year, I’ve got bad news — I really don’t think that’s going to happen,” said Martin. “I expect demand will continue to be strong for most of 2022 and supply to continue to be constrained. Used car prices may drop later in the year, but not to the same degree that they have increased by in 2021.”
At least with a second-hand car you can drive it away quickly.
Don’t overpay
Not all cars have soared in value.
The demand for electric cars has risen dramatically and one in five new cars registered last month was electric, according to the Society of Motor Manufacturers and Traders. More than 21,000 electric cars were sold last month, more than twice as many as in November last year.
Advertisement
Research by the marketplace Autotrader found that the supply of used electric cars is almost unchanged, down 0.6 per cent down since November 2020, while demand skyrocketed 75 per cent in the year to November and 130 per cent in the year to October, pushing prices up 27.8 per cent.
The demand for used petrol cars was up 11.3 per cent in the year to November while supply was down 7.4 per cent. Prices were up 29.5 per cent.
As more people moved out of cities to the countryside during the pandemic, there was a 11.3 per cent increase in demand for larger multi-purpose vehicles (MPV), also known as people-carriers. Supply fell 43.7 per cent because many are built in the Far East, where factories closed in the pandemic. Prices of used MPVs are up 32.6 per cent in a year.
Demand for diesel cars is up only 6 per cent thanks to the extra surcharges, parking fees and tax increases imposed on these cars in the UK. Diesel car supply is down 14.4 per cent and prices are up an average of 29.4 per cent.
Use websites like What Car?, Autotrader and Parkers to research the car that you want and a valuation service so you can see what sort of price you should be paying.
Watch out for dealers trying to cash in on price inflation. Haggle where you can, particularly over dents or defects and don’t be afraid to ask for add-ons like sat navs as part of the deal.
What about finance?
More than 90 per cent of new cars are bought on finance, which can help protect you from price falls.
Most deals are personal contract purchase (PCP) plans where owners pay an initial amount and then three or four years of monthly payments based on the anticipated final value of a vehicle.
You are essentially renting the car — you will never own it unless you pay the “balloon” payment for the rest of the value at the end of the term.
Alternatively, you can give the car back or trade it in for another PCP car deal.
Parkers examined the cost of the average PCP deals for the five most popular cars and discovered that all of them other than the Tesla come in at an interest rate of below 5 per cent — not a bad rate for a long-term loan.
It found that the average rate on a PCP deal for a new £17,405 Mini One was 4.9 per cent APR with a £2,000 deposit. It would cost £210 a month for 48 months with a projected usage of 8,000 miles.
The average rate on a £17,980 Vauxhall Corsa SE edition was 3.9 per cent APR with repayments of £205 a month for 47 months with a £2,700 deposit.
The average PCP for a £53,125 Tesla Long Range was 6.9 per cent — £400 a month with a £5,000 deposit. As an electric vehicle, its running costs would be lower.
Should you sell?
Adams said drivers nearing the end of their PCP deals are getting letters telling them that their car is now worth significantly more than the original estimate, leaving them with unexpected equity.
They are being offered the extra cash in exchange for the vehicle or being encouraged to put this money towards another car on a PCP deal.
A Renault Clio rented under a PCP agreement for £7,000 in October 2018 would be worth £10,000 now, which would mean a £3,000 windfall for drivers handing the car back.
If you cannot find the new car you want you could be offered a finance extension that will let you keep your car for longer. These “bridging” deals should have the same terms as the old contract.
Volkswagen, which has suffered some of the biggest delays in manufacturing new vehicles, allows drivers to extend an agreement by up to three months if you have another VW car on order that will not be ready in time. It also offers extensions for six or 12 months, although the monthly payments might change.
