Feel like it’s time to freshen up your ride? Expert advice says to think twice.
Mike Sinclair, editor of Sale of cars says his number one tip is “buy what you need, not what you want. If you’re happy with your car and don’t need to change it, now’s probably a good time to sit on it.
You may have heard of the global ‘chip shortage’ – we’ll get to that later – but Australia’s current automotive problems are a perfect storm of conditions. Like the spike in energy prices, the rise in car prices is impacted (among others) by the war in Ukraine, the ripple effects of COVID-19 and the price of fuel.
What is the chip shortage and why can’t I find the new car I want?
If you’re looking for that sweet new model, you might struggle.
There are roadblocks in the process from production to delivery, and the cars just aren’t there.
What you may have heard about chip supply refers to a global shortage of semiconductors, slowed by COVID-19 but long standing in the industry. With a slowdown in production and long-term shortages in the region, the increased demand for computer chips in cars is seriously outpacing the rate of production.
Sinclair explains: “Cars require more and more computers. Even a heated seat in a car contains a small computer. Loading chips into cars has exploded – all of these great security features that have been put into cars require computers,” adding that the problems we are having now “happen anyway.”
It’s not just about the chips – other key components are severely delayed.
A fan of German engines like Audi, Volkswagen and BMW? These brands have all historically sourced their automotive wiring loops from Ukrainian manufacturers. This process is naturally considerably delayed by the Russian-Ukrainian conflict.
The complications don’t end there, as the world deals with the ongoing impacts of COVID-19. With China’s auto production plummeting in April due to COVID shutdowns, Chinese industry is scrambling to keep output steady as demand continues to rise. COVID-19 also continues to affect the supply chain in more modest ways, with illness and absenteeism leading to workflow disruptions.
Then it’s time to go to Australia, which is a problem in itself. With fuel prices at an all-time high, shipping is at its most expensive and you’re bound to feel that burn when it comes to retail prices.
Not to mention the massive fumigation delays caused by invasive bedbugs when importing cars – believe it or not!
All of these factors combine for a less than ideal market. Cars marked above their recommended prices are becoming more common, along with massive backlogs in fulfilling orders for some models.
Are used cars the way to go?
Thinking of sticking with a used car? Beware.
Used car prices have continued to rise over the past 12 months, according to Datium Insights and Moody’s Analytics Used Vehicle Price Index for May. While the Aussie household savings remained above pre-pandemic levels and cars are in high demand, we don’t have many cars ready to go anymore.
It’s not uncommon to find an ad for a used car with 50,000 miles on the odometer at or above the original selling price. Stranger again? It’s not uncommon for this list to be taken quickly.
Sinclair recommends using a comparison site and knowing the car you’re looking for if you’re in the market for a used purchase. It’s important to “understand how much there is, and especially to understand if there is stock in your areas,” he says. In this case, the knowledge will help you navigate the market much more efficiently.
What does this mean for my portfolio?
Well, that’s great news if you’re looking to sell (and not immediately replace it with a new car). Your car no longer necessarily depreciates as soon as you put a few miles on it, and now could be a great time to take advantage.
Alternatively, if you decide to stick with your current car, that’s more money in your back pocket. Think about how you can get the most out of it by comparing savings accounts.
There are lights in this dark landscape. Sinclair names South Korean manufacturers as a reliable supplier, as well as some Chinese automakers when production is in full swing. It also notes that between these periods of high demand and low supply, there will be “up and down supply of models as production releases or Australian products come online”.
In the meantime, the advice is to hold on if you can. Although it may not be too soon, the industry is gradually finding workarounds and solutions to all these problems to meet current demand. If that’s not an option and a car is something you need right now, you might want to look into auto loan options that might provide you with the support you need.
Compare and switch car loans with our car loan comparison calculator. Find our top auto loans and top used car loans from the Mozo Experts Choice Awards to see our picks.
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