Why are new cars expensive?: These are the causes – Sectors – Economy

the automotive industry It was one of the markets most affected by the pandemic of covid-19. In the last two years, Colombian consumers have reported an exponential increase in the price of new carssituation that has hindered its acquisition.

fall in the car market

According to the data provided by Oliverio García, president of the National Association for Sustainable Mobility (Andemos)The car market in Colombia has been falling since August of last year: “So far this year we have registered a little less than 61 thousand units, that’s they are 17 thousand units less than the first 4 months of last year”.

In an interview with EL TIEMPO, the founder of Andemos explained that there is a concern in the automotive sector due to the low percentage of sales. “Practically, it’s a month of sales that has been lost due to the contraction, this is due to two fundamental factors,” he said.

One of the main reasons that would decrease the vehicle market in Colombia are the high interest rates that are being handled and that complicate the financing of this product, which is mostly purchased on credit.

“You have to keep in mind that this it is a highly leveraged market by the financial sector, regulations when people buy a car finance it. As the cost of money becomes more expensive, the willingness to buy on the part of households is greatly tightened, the indicators of household consumption in recent months has been falling, especially in durable goods such as vehicles”, highlights Oliverio Garcia.

Why are cars expensive in Colombia?

The union president explained that prices have increased in the automotive market compared to other years, and this occurs as a consequence of the pandemic, which affected the global vehicle market, complicating its supply and has contracted this sector.

Oliverio Garcia stated that there was a limited offer of new vehicles, decreasing the availability of cars globally and causing the drop in sales. In addition, the increase in the prices of this product ‘surfaced’ the used car market.

But it is not the only factor that has affected the price of cars today, the director of Andemos said that “the inflation suffered by the world economy hitting the market, And this makes buying a new vehicle more expensive.

“Another factor that already has to do with a domestic one, has been the devaluation that the peso has had in the last 12 months, that at some point translates into the price of the vehicles. Let’s not forget that this market is elastic to price variations, if these increase, demand contracts and has an inverse relationship; if prices fall, demand expands“said the manager.

Eduardo Visbal, Vice President of Foreign Trade of the National Federation of Merchants (Fenalco), explained to EL TIEMPO that vehicle prices are expensive because the exchange rate has devalued and this product is imported, so it is paid in dollars.

“Due to the increase in devaluation, they have become more expensive. There are no novelties in the market, what has changed is the price of the cars because the demand has contracted. In the first half of May, the market drop in relation to the first fortnight of May of last year was 36.2%”, indicates the Fenalco official.

Another detail to keep in mind is the used vehicle market that has been going strong with historical sales figures for the country. “We calculate that the used market may be among the 900 thousand and one million units, last year it achieved the sale of 1.2 million, the best second year in history. The used market has been going strong.”

And I said: “We have seen that the ratio of new to used has been increasing progressively, before three transfers were made for each new vehicle, last year we had a rate of 4.1, and this year we are already above five, he has suspected a point”.

(You may also be interested in: Kings of the market in Colombia: best-selling cars in each of the last 10 years).

For the entrepreneur it is important to note that new vehicles entering Colombia are “highly taxed” for different taxes. According to figures provided by Andemos, in the country a new car has taxes of up to 35% and they can go up “because the President’s announcements, to adjust the tariffs, make the market more nervous.”

However, comparing Colombia with Latin America, the prices are “in the average” to those of the regionbut based on data in European countries and the United States, the costs increase exponentially.

“No doubt cars are expensivebut if we compare ourselves with Latin America I think that we should be in the middle. But if we compare worldwide they are more expensive, because tariffs are more expensive; while the tariff in the United States for vehicles is 2%, in Europe the rate is 10%, here they have tariffs of 35%, discounting trade agreements. In addition, there are many countries that supply Colombia, where no trade agreementswe are talking about the India, Japan, China, which are important producers of vehicles that enter the country”, pointed out the president of the association.

And he added: “I think that price variations They must be very similar in Latin America, Colombia’s prices must be very similar, sometimes even higher, countries like Chile, which is an important market, has lower tariffs, along with Mexico, Argentina, Brazil and Ecuador. Regarding comparative prices I would not highlight a great difference from what is in Colombiacompared to what is in other countries”.

Market forecast for the second half of the year

Finally, Oliverio García gave his analysis for the second half of the year and explained that the new car market should stabilize because there will be more inventory (a situation that was null in the pandemic) and, under the laws of supply and demand, prices could have a tendency towards stability.

“An inventory of verses on the channels is already beginning, especially in some models more than others, but in the end I think that there will be a tendency to increase the number of channels or to the restoration of inventory levels. That should impact several things,” he said.

(Read here: Ford Fiesta: What type of vehicle is it and why will it go off the market in 2023?).

And he stated that: “We are going to start to see a commercial dynamic that we had stopped seeing in the years after the pandemic, precisely because of the lack of availability of the product. Now let’s start to see more dynamic offers and discounts that we haven’t seen for a long time.”

Of course, he made it clear that prices will hardly have a sharp drop. “The behavior of prices It will depend on inventory levels. promotions and the behavior of the dollar. I agree with the surveys we have done is that at least prices could stabilize I don’t know whether to go down.”

In addition, he stressed that the variations of the dollar will be fundamental for new car prices to rise, or stabilize. “If the dollar maintains a trend like the one we have seen in recent weeks of revaluation, then there if one can wait for prices to drop, but we must not forget that there has been a significant devaluation”.

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