When the car becomes a luxury product again

It’s one thing to say that car prices have gone up a lot; knowing by how much is another. During a survey, the AAADATA company gave me the figure: between the first half of 2019 and that of this year, i.e. between before and after Covid, the average selling price of a car new went from €26,775 to €32,446.

I had already dealt with car price inflation here, but there, there is runaway: a little more than 20% inflation in three years. In 2010, this average price was just under €20,000…
Even the Dacia Sandero took a lot of money: in three years, it went from 8,500 to 11,000 € in its basic version.

When the car becomes a luxury product again

What is new is that unlike enrichment, this inflation trickles down:
At first, the slump in new cars dried up the market for recent first-hands, then combined with the increase in delivery times caused their prices to soar. Then the rise gradually trickled down to the bottom of the market. Old things that weren’t worth €1,000 before the Covid are trading at €3,000 and a friend confided to me that he had taken €5,000 from his mother’s dented Toyota (21 years old and 120,000 km) which he hadn’t succeeded in to get rid of for half less two years earlier.

The scrapping CAP

Another anomaly, in August, more cars over 15 years old than new were sold: 96,000 against 91,500.

Clearly, cars which previously were scrapped as part of the conversion premium now find takers because today they are often worth more than the €1,500 or €3,000 of the CAP.

Second-hand buyers laugh less. On a well-known classifieds site, it is difficult to find a decent compact family car for 10-12 years around 100,000 km under 7,000 €. The only real choice is between €7,000 and €10,000.

Equally confusing, three-year-old cars are showing up at their new 2019 price.

When the car becomes a luxury product again

The power to set prices…

I know, this all stems from the Covid pandemic and then from the war in Ukrainethe shortage of components and then the surge in energy prices.

But to my knowledge, the Taiwanese microprocessor factories of TSMC like those of Samsung in Korea are running at full speed again.

What remains topical is an Anglicism that manufacturers discovered during the shortage: pricing power, the power to set prices, a fabulous thing, the Grail of the marketer who makes it possible to cross two curves: the fall in sales and the growth in profit. Clearly, how to earn more while selling less.

For the end of the price war, the discounts, promotions and rebates, the VD (demonstration vehicles) which ended up in “used 0 km”, the clearance sales to rental companies and agents, the torrents of advertising and all these commercial contortions which nibbled the margin .

When the car becomes a luxury product again

“Pricing power”, how do you say it in Chinese?

I’m not saying that there is an agreement among manufacturers to maintain high prices, but no doubt an implicit consensus to no longer aim for large volumes which require “pushing the sheet metal” at all costs into showrooms.

How else could they? The materials of the electric transition, lithium and rare metals do not flow freely like those of the automobile of the 20th century, steel, aluminum and plastic.

This is why I hardly believe in the oft-heard predictions of a return to normal prices by the end of 2023. And also for two additional reasons.

On the new side, to be able to sell electric cars at their true price, it is important not to offer thermals that are too cheap…

Even less so when the state favors the latter by slashing fuel prices while electricity prices threaten to explode.

On the second-hand side, no more improvement in sight because the slump in new cars over the past three years will have lasting effects: the hundreds of thousands of cars that have not been manufactured for almost three years will be missing from the market for a very long time.

In short, the car is becoming a luxury product and we do not yet measure all the social, political, demographic and geographical consequences…

But already an economic fallout: in 2022, sales in France of Chinese manufacturer MG increased by 98% and European imports of cars (LCVs, buses, trucks) from China jumped by 150%, reaching 500,000 units, and their value tripled.

How is pricing power said in Mandarin?