How the cost of living crisis is affecting car buying

The car industry has so far ridden out the shocks of Covid and subsequent supply chain disruption surprisingly successfully, at least as far as profits have shown. But the greatest shock might yet be around the corner and that could be much harder to overcome: a collapse in demand. The consumer’s desire for new cars has so far outstripped the limited supply, allowing car makers to pare back marketing costs, including discounts, and focus their attention on the pricier cars making the most profits. Car makers could even pass on the cost of rising raw materials without worrying too much about the effect on orders. However, a new survey from What Car? (see graphic below) that canvassed the opinion of those in the market for a new car showed that 37%, over a third, had decided to delay their purchase as they coped with inflation across their monthly bills. Of those people, almost half said that delay would be over three months, while a quarter said they were putting it back until next year. The survey also discovered that of those potential new car buyers, 40% had changed their make or model to choose something more affordable. The What Car? research concluded that rising inflation could result in serious consequences for the automotive sector. Customers looking to save money by downsizing or moving to a cheaper brand are already having a tough time of it. The average price of a car on the market today, as collated by What Car?, is £44,259, up 4.6% this year alone. That doesn’t tell the whole story however. Rising inflation and reduced discounting is pushing up the cost of financing, meaning monthly payments are accelerating much faster than the list prices. “It feels that at some point consumers have to push back on price. That creates demand destruction,” Philippe Houchois, managing director of automotive research for investment bank Jefferies told the Automotive News Europe Congress earlier in July. “We are getting to the point where the extra cost of buying and using a car is creating an obstruction where people are looking at alternatives.” Sales are already well down because of the difficulty in sourcing parts, so the data doesn’t clearly reveal whether the car industry faces a problem. However, the dealers are beginning to register a change. “We are seeing a softening in order take for new cars,” Robert Forrester, CEO of dealer group Vertu, said. Getting hold of a car is no longer the number one problem. “Lead times are not a key issue. Affordability will be the main driver,” Forrester said. Buyers face a much reduced choice of affordable cars. The city car market has almost virtually disappeared, bar a few holdouts like Hyundai and Toyota. Ford currently has put a stop on all factory orders for the Fiesta and Focus as it navigates supply chain shortages, cutting off those traditional paths to affordable motoring for the time being. Other brands are deliberately pricing customers out of the market for popular cheap models as they try to clear a backlog of orders. Electric cars are a big source of price inflation as raw material costs hit what’s already an expensive purchase. Tesla CEO Elon Musk admitted prices for his cars were “frankly at embarrassing levels” on an investor call on 20 July. He blamed “crazy inflation” of raw material costs as well as supply chain shortages. “I am hopeful that, at some point, we can reduce the prices a little bit,” he added. Musk said Tesla had seen “some” impact on demand due to higher prices but said it wasn’t material. The price pressure is good news for cheaper brands like Dacia. “We’re probably on more people’s consideration list than we were previously,” brand director Luke Broad told Autocar. “When I speak to customers myself, they say: ‘I’d not really considered Dacia [before]’”. Dacia’s UK sales were up 75% in the first six months at 12,111, making it the fastest growing mainstream brand after MG, in a market down 12% on the year before. The question now is whether car makers can ride out any potential slump. Usually ahead of a recession, discounts would be rife, stock levels through the roof and distress selling would be the name of the game. None of that is currently happening because supply has been artificially constrained. That might just be the saviour of the industry: the crazy situation that led to the current price inflation has already forced the car makers to become lean and ready to cope with the worst.

main menu

How the cost of living crisis is affecting car buying

As household costs rise, a What Car? survey highlights how consumers are delaying their new car purchase

Add your comment

More from Autocar

Top 10s

Latest car reviews

Top manufacturers

Quick search

Legal bits

About Autocar

main menu

How the cost of living crisis is affecting car buying

As household costs rise, a What Car? survey highlights how consumers are delaying their new car purchase

Autocar Login Block

Add your comment

More from Autocar

Top 10s

Latest car reviews

Top manufacturers

Quick search

We recommend

Legal bits

About Autocar