In recent years, the used vehicle markets have faced problems as the semiconductor supply crisis has affected the vehicle purchasing chain. Although many vehicle manufacturers believed that the problems had already peaked, it appeared that 2022 would be the year when vehicle deliveries would return to pre-crisis levels.
However, those plans were thwarted by Russia's invasion of neighboring Ukraine, leaving the auto industry facing an even bigger crisis that will be much more difficult to resolve. Matas Buzelis, automotive industry expert and head of communications at vehicle data company carVertical, provides insights into the situation.
Damaged supply chains
Automotive industry expert Mr. Buzelis points out that while Russia's new automotive market is not the largest in the world, it plays a significant role in the automotive industry's supply chain.
Russia exports valuable components for the automotive industry. Germany, for example, relies on Russia's titanium, iron and palladium. Additionally, with 108 million tonnes of iron ore produced in 2021, Russia is the world's fifth largest iron ore producer, supplying European steelmakers who are now facing higher prices and potential difficulties in sourcing the metal elsewhere.
Russia's invasion has also impacted the automotive industry in Ukraine. For example, German car manufacturers such as BMW and Volkswagen use a large Ukrainian supplier of wire harnesses. In addition, Ukraine is the third largest producer of nickel and aluminum, two highly valuable resources needed in battery and EV components.
After all, Ukraine produces nearly 70% of the world's neon gas needs for components like microchips, which are already in short supply.
It is becoming more difficult to get a good used vehicle
Buying a used vehicle was already difficult and expensive in 2021, and it looks set to become even more difficult in 2022. As the used vehicle market continues to grow, used vehicle dealers are faced with a shortage of vehicles.
One of the main reasons for the current situation is the crisis in the new vehicle market. Manufacturers are beginning to curtail vehicle production to keep production lower but more stable. This change in new vehicle construction slows the flow of vehicles onto the used vehicle market. Vehicle owners therefore postpone the sale of their vehicles or do not sell their vehicles at all.
“Those interested in buying a used vehicle are now choosing from the most limited and expensive offers in the used vehicle market. However, the limited supply of used vehicles does not mean that buyers should forgo fraud protection procedures. On the contrary, buyers should check the history of each used vehicle, as the choice is very limited ”, – says Mr. Buzelis.
As the Head of Communications at carVertical explained, used vehicle dealers can buy anything they can get with less concern for the condition of the vehicle. The risk of buying a used vehicle in poor condition can be a lot higher than it was, say, a year or two ago.
Unpredictable used vehicle prices
In 2021, used vehicle prices had already reached all-time highs. Although they stabilized and even started falling towards the end of the year, the Russian invasion of Ukraine has created an unprecedented situation in the Eastern European used car market.
For years, buyers of used vehicles from Ukraine have been flocking to Poland, Lithuania, Slovakia and Hungary. While newer motor vehicles were in greater demand in these countries' domestic markets, Ukrainians bought many cars that were more than a decade old, especially those with fuel-efficient but "dirty" diesel engines.
On the other hand, the reduced flow of customers will change the used vehicle market in the neighboring countries of Ukraine. Older motor vehicle prices are likely to fall as dealers try to cut losses to adjust to the current situation.
The influence of fuel prices
Fuel prices have passed the critical €2 per liter mark in many European countries, sparking interest in changing daily habits.
“Rising fuel prices will result in some drivers commuting less. People can reduce their annual mileage by choosing public or other alternative modes of transportation. Fewer kilometers would lead to fewer accidents, which would lead to savings in operating costs," says the carVertical expert.
This would reduce the number of vehicles on the road, but higher fuel prices are also increasing interest in fuel-efficient vehicles.
This means vehicles with diesel engines can attract interest due to unbeatable fuel economy on the Autobahn. However, this trend will be limited to countries where vehicles with higher CO2 emissions are not taxed.
Increased fuel prices will encourage people to invest in used electric vehicles. Despite rising energy prices, the total cost of ownership of electric vehicles remains lower and can be further reduced when solar energy is used for charging. Charging with solar power saves an estimated 600-800 euros per year.
