‘Lost 31 million’ will push up RVs for “2 to 3 years”

Call them the ‘lost 31 million’: the new vehicles that haven’t been built over the past few years, due to the pandemic and supply chain issues. That deficit will weigh heavily on the value of used cars for years to come, says Philip Nothard (pictured), Insight & Strategy Director at Cox Automotive International.

In 2018, global light vehicle production stood at just under 96.9 million units. In 2019, it dropped slightly, to almost 92.2 million. But in the first year of the pandemic, light vehicle production worldwide dropped precipitously, to just 77.7 million units. Production recovered somewhat in 2021, but only to 80.1 million. 

90 million units

“When we add up 2018 and 2019, and compare that figure to 2020 plus 2021, the global automotive industry has produced approximately 31 million fewer vehicles,” says Mr Nothard. “Although we believe production will gradually increase again over the coming years, it will certainly not make up for this loss, even if we return to the 90 million units per year level.”

Those figures have an immediate and considerable effect on new car sales. Comparing the same two pairs of years for Europe’s Big Five markets, we see that new car registrations:

• in Germany have gone down by 1.7 million, from 7 million (2018+’19) to 5.3 million (2020+’21);
• in the UK have gone down by 1.6 million, from 4.7 million to 3.1 million;
• in France have gone down by 1.2 million, from 4.4 million to 1.2 million; 
• in Italy have gone down by 1.1 million, from 3.8 million to 2.7 million; and 
• in Spain have gone down by around 930,000, from 2.6 million to 1.7 million.

Prices go up

“In those Big Five markets combined, that adds up to a loss of around 6.5 million new car registrations in the past two years, compared to the previous two. And indications are we have already lost another 1.1 million new-car registrations just in the first quarter of this year,” Mr Nothard says. 

With supply significantly down and demand consistently robust, a fundamental economic truth asserts itself: prices go up. In other words, the drop in output has not necessarily translated into a drop in revenue for the major OEMs. Which has given them pause to reconsider their strategy, Mr Nothard points out. 

“While some will undoubtedly return to focus on volume as a model for profit, other OEMs will move towards more profitable premium models, while others will refocus entirely on electrified models.” All of which makes it doubtful whether we will ever return to 90-plus million annual production volumes, he says. 

‘Push’ or ‘pull’

The fundamental question, Mr Nothard says, is: “Will the future of the new-vehicle market be ‘push’ or ‘pull’? Will we return to a market with high volumes of pre-registrations and tactical activity, heavy de-fleeting and unattainable targets?” 

“Many commentators believe this is the case, and that the OEMs haven’t learned their lesson. That when supply returns, we will again become a ‘push’ marketplace. However, I believe some OEMs may return to volume, as it’s the business model they understand best. Others will remain driven by demand and, therefore, by profitability.”

The emergence of a ‘pull’ market over the mid to long term would have a major effect on the used-vehicle market as well: as scarcity moves from the primary to the secondary life-cycle of vehicles, residual values (RVs) are likely to go up. 

2 million short

But of more immediate concern are the ‘lost 31 million’, which weren’t available on the new-car market, and whose absence will soon be felt on the used-car market. At the end of the putative life-cycle, this lost volume of new cars will drive up RVs for used cars by an appreciable amount and for years to come, Mr Nothard predicts. 

Agreeing with that view is Alex Wright, Managing Director of Shoreham Vehicle Auction (SVA) in the UK. Conceding that used-car demand is slowing down somewhat, Mr Wright says that used vehicles are in such short supply that RVs will remain high for at least two to three years. After his calculations, the UK’s wholesale used-vehicle market at present is short more than 2 million vehicles. 

Image: Philip Nothard