If there is one thing the Wuhan Wheeze taught us, is that we are crap at predicting the future. First, we all thought that we were going to die, but we didn’t. Then, we anticipated an economic meltdown, but it soared on the good graces of money printers. Lastly, everyone thought there will be a surplus of cars now that nobody could afford one. That prediction went out the window too, as we find ourselves treading on a massive used car bubble.
Nobody anticipated that people would buy a car to avoid going to work on a massive moving petri dish. Neither could have anyone predicted that new car stocks would dry up thanks to a semiconductor shortage. Or that car rental companies would stop replacing their fleet, drying up a once steady source of used cars.
Why is there are used car bubble?
Experts predict that the used car bubble would continue so long as the drought in the supply of new cars holds up. For now, carmakers around the world are either cutting back on production or rushing out cars without minor electronic features. However, the situation isn’t expected to improve till the middle of 2022.
Should new car supplies return to normal, pundits expect used car prices to deflate. Of course, that prediction is subject to change, should no further virulent strains appear and cargo ships stay on course. And that isn’t accounting for hyperinflation to rear its ugly head.
If things go accordingly, this used car bubble would be nothing more than an anomaly in an anomalous period. On the flip side, it could be a prelude to an even bigger bubble that is looming in the next decade.
What will cause the next used car bubble?
In case you missed out on all the media hysteria, countries and cities around the world are already preparing to ban the sale of new fossil fuel vehicles in the next decade. Countries like Germany, Sweden, India, and the United Kingdom will ban the sale of pure combustion engine vehicles by 2030. Many more countries like Canada, France, Japan, and Thailand will follow suit throughout the 2030s and 2040.
It isn’t as though carmakers are protesting this move. Following the Dieselgate fallout, Volkswagen committed itself to be a full-fledged electric car maker. BMW and Mercedes-Benz are also banking hard into the electric car business. So too are Jaguar and Alfa Romeo reforming their entire model range.
With all these changes taking place, the all-knowing experts have stepped in with their hot takes. Some predict that this will cause a Cuban-like situation for countries that won’t implement bans on the sale of new fossil-fuel vehicles.
They predict a dystopian future where the market will be flooded with outdated fossil fuel vehicles with no resale value. That is a loaded prediction with the same kind of Malthusian logic that said we would all starve by the 1970s or be piling bodies on the street because of the cough heard around the world.
The limitations of electric vehicle ownership
If the past year has taught us anything is that human nature has a sly way of thwarting predictions. We are logical and illogical beings at the same time. To say that everyone will embrace cheap electric vehicles is an oversimplification.
Right now, everyone’s main concern about electric cars is where are they going to charge them? With more people being crammed into apartment complexes in crowded urban centres, having adequate charging ports will be an issue. Not to mention, there are doubts if the power grid can handle the combined load of so many electric vehicles plugging in.
Also, predicting that the used car market future will be akin to Cuba’s is an apple to oranges comparison. Cuba is a communist planned economy with trade embargoes constricting supply. In richer, more liberal capitalist economies, the market usually responds with more unpredictability. Just as how the value of classic cars has long disconnected itself from its utilitarian value.
One outcome to a market with a constricted supply of new fossil fuel vehicles and limited electric vehicle infrastructure support would be a repeat of the used car bubble we are experiencing now. People aren’t going to buy an electric car just because it is affordable. We often forget that these choices are based on a matter of convenience.
Stymied by convenience, not price
You can change your car every year or so with little impact on your lifestyle. But changing your residence? That isn’t so easy. More so with a bubbling housing market in many developed economies around the world.
Your work-life situation, more than your bank account, will play a bigger factor in your car purchasing decision. For many people, a fossil-fuel vehicle would still suit their needs and situation better than an electric car. And when the supply of new fossil-fuel cars run out, guess where buyers will turn to? Sound familiar?
Unlike the current used car bubble situation that we are in, this bubble might no deflate over a year. Or even over a decade. No amount of manufacturing changes or upsizing will alleviate it. At that point, it may not be a bubble anymore, but a new norm.