It seems you can’t open a newspaper, or browse a news site, without seeing more negative stories around the increased cost of living, energy and fuel. Raw material costs are soaring, and supply chains continue to be disrupted by ongoing semi-conductor shortages and COVID-19 recovery.
What is the best way forward when planning your next car?
We’re here to give you a dose of good news. Firstly, underlying interest rates remain incredibly low, with very few finance companies passing on any hedging for possible future rises to consumers and businesses. We do expect these rates to increase in the coming months, however, so timely decisions to lock in pricing may well be appropriate.
With regards to car prices, we are probably likely to see these continue to rise. Manufacturers are realising that as long as stock with their competitors is also low, they can afford to both raise prices and pull back discounts, and with certain dealer groups reportedly under serious financial pressure from the current supply chain delays, it is unlikely we will see a return any time soon to pre-pandemic pricing.
What about extensions?
Many of our clients are exploring extensions, and perhaps even switching to used cars. With regards to the latter, as we covered recently in our Market Recap white paper, our advice is almost universally to avoid the used car market at present. 30% valuation appreciation over the past 12 months make the overall economic inflation rates look insignificant in comparison, and what is more, this is an entirely artificial value-rise, with many people likely to experience a nasty bump back to earth in used car values in the second half of 2022.
Extensions often do represent good value, where leasing companies are willing to extend (many of them are keen to ‘cash out’ of their position while the market is high). One word of caution is that we do see both vehicle and finance rates likely to increase, and when we analyse a total cost of ownership over the next 3 years, it is rare that a 12 month extension and then 24 months of new car at 2023 pricing looks attractive vs. what is on offer here.
As ever, this is not a one-size-fits-all view, and it is here where our industry-leading Fact Find process with your personal expert really helps sort the doom-scrolling from the reality.
