Value of semi-nuevos: Phenomena never seen

The Mexican automotive market continues to suffer from the multiple economic phenomena that occur at a global level but also others of a local nature. Its potential is tied despite the fact that in the accumulated from January to August 2022, 692,685 units were sold, which represents an increase of 1.7% compared to what was reported during the same period in 2021.

Issues such as product unavailability, increased logistics costs, or component unavailability have impacted the price of new cars. However, pre-owned vehicles are experiencing an unusual period of prosperity and to explain this behavior I spoke with Óscar Andrade, Head of Financing at OLX Autos, as well as with Alfonso Chiquini, Director of Marketing at Volkswagen de México.

Financing

The rise in the price of zero kilometer units has not had a break and month after month they have significant increases. Given this scenario, the OLX Autos executive considers that automotive financing is the answer to deal with this phenomenon. “There are macroeconomic and some local factors, but particularly the automotive industry is an issue of supply and demand. The limited supply of new cars causes customers to be interested in looking for a pre-owned alternative.

The inflationary factor and the scarcity of the vehicles causes prices to maintain a relatively higher value against the depreciation that is commonly seen when there is a natural supply. However, despite the inflation that exists in the market, the solution is automotive financing. The inflationary factor is resolved in part through credit tools.”

market inflation

For Óscar Andrade, inflationary pressures are gradually easing despite the economic policy announcements made by the FED (United States Federal Reserve System), as well as the Bank of Mexico.

“We believe that we are already reaching this point where the macroeconomic issue is being resolved little by little. On the other hand, it is news from all the automakers that they are already solving their inventory issues, so the estimate is that in the next 18 or 24 months everything will be mostly regularized. What is going to benefit the pre-owned market is that the availability of new cars creates this secondary market because, having a new one, there was a pre-owned that was delivered in exchange.”

Depreciation and its repositioning

The relationship between a new unit and a second-hand one has always been maintained with some regularity, however the instability in the market and the high demand are creating new behaviors.

He said that “vehicles are commonly depreciated for mechanical value and not so much due to inflation. But at the end of the road, the compensation of one against the other does not become exorbitant. We commonly see that if it is not due to inflation, it is due to the exchange rate that most of the prices of imported cars, being dollarized, constantly bring upward adjustments to offset the exchange rate a little. This is a naturalness that occurs with or without inflation. In these moments when the exchange rate is more stable, we also see the inflationary factor that is coming up”.

A bubble that will burst

For the executive of the German brand, the ups and downs to which the national market is subject created a growth bubble for some brands.

“Let us be careful with what has happened in the last year and a half because this is a bubble that is going to burst and nobody knows the consequences of this phenomenon. Today all brands are suffering from a lack of product, this has brought benefits and also negative impacts such as production capacity or working hours, but the positive impacts have been greater because there are fewer inventories, fewer costs related to inventories, capital of work, etc. What is happening is an issue that has never happened before that is causing the market to have a veil that does not leave us reality.

He added that the increase in pre-owned prices is the consequence of a long period in which mobility dynamics changed. “When have we seen that a preowned had almost the value of the new one? But everything is a matter of demand. As there are no new cars today, people need to cover their need for mobility. If we look back, at the time of confinement, people sold their cars as they did not need to go out. But now that they require mobility, they are causing second-hand prices to increase. There is a natural space that has been created that is pushing prices because today all brands sell without any type of incentive”.

constant difference

He also said that the relationship between the prices of both types of units was always maintained, which positively dragged second-hand but also gave opportunity to new manufacturers.

“The cost of raw materials and everything related to the manufacture of a car increased, which generated an increase in the price. We have an increase of more than 10% so far this year. The pre-owned followed the same trend because if there were no problems with the availability of parts and logistical issues, the new car should have subsidies or sales actions, which would reduce its price and, therefore, the price of the pre-owned would be lower. What is certain is that the relationship between the value of new and pre-owned cars is maintained and also the fact that some brands that had not been able to have the kindness of maintaining a difference between the price of a Zero kilometers and a used one, today they could have it because of a scarcity issue.”

marcos.martinez@eleconomista.mx