Over recent years, the motoring market has been difficult for manufacturers, retailers and customers alike. The silicon shortage, combined with Covid-19, has made it difficult to get cars to market; now, a rise in interest rates and an economic downturn are making it difficult for customers to find the money to actually make the purchases.

Let’s take a look at the state of the business, and how things might conceivably change in the years to come.

How interest rates are affecting the car market

When the Bank of England’s base rate is high, it means that the finance offered to customers is less attractive. This means that retailers are sure to see a slump in demand, not only for cars purchased via borrowing, but for everyone. Just as a rise in interest rates will help to drive down the price of a house, it’ll also drive down the price of a car.

How are motorists going about financing their vehicles?

Motorists are having to get creative about the way that they pay for their vehicles. This might simply mean opting for a smaller, less expensive car. It might mean going for something that’s cheaper to run, and to insure. It might mean making the switch to leasing, which can remove many of the obstacles to purchase. Retailers are increasingly offering customers many different ways to buy.

Of course, one might also look into selling existing assets in order to generate the cash for a new car. There’s also the option of using an equity-release mortgage to generate the necessary extra cash.

Will the car market crash in 2023?

As recent history has shown, it’s incredibly difficult to predict what will happen a year down the line. In 2019, no-one was worried about Covid-19, and thought that Brexit would be the defining issue of the time. In 2022, very few people considered that Russia might invade Ukraine, sending global food prices and supply chains into havoc.

With that said, we can still guess at what’s going to happen to the car market in the next year or so. While interest rates are going up, we might not see a price rise because the supply of new cars remains ‘fundamentally constrained’, according to Auto Trader boss Nathan Coe. On the other hand, the depressed consumer demand is creating a unique situation, with the two forces effectively cancelling one another out.

As such, the generous profit margins enjoyed by retailers in recent years seem unsustainable in the long-term. Many forecasters that we’re going to transition back into more normal market conditions – though given the pace at which world events are moving, what that might look like is difficult to say.





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Clarence Choe