RIO DE JANEIRO, BRAZIL – With demand on the rise, prices have climbed to levels unseen since the Cruzado Plan (in the 1980s). Some models have appreciated by over 20% in one year. In a normal market, cars lose between 15% and 20% of their value after one year of use.
Although the segment is also registering a shortage of units, sales through August set a record, with 7.59 million cars and light commercial vehicles. The figure is 48.8% higher than in 2020, one of the sector’s weakest years because of the pandemic, but also 6.6% above the 7.12 million used cars sold in the same period in 2019, until then the best result in history, according to the automobile dealers association FENABRAVE.
The ratio between the sales of used and new cars is also at its highest since records began in July 2004, according to Bradesco, which works with seasonally adjusted data. For each new car sold in the year, 6.5 used vehicles were sold. The former highest level had been seen in the 2015 and 2016 crisis, when it stood at 5.5.
“In times of crisis it is normal for this ratio to increase, but this time the wage bill was preserved by (government) stimulus and sales grew partly because of demand, and partly due to a shortage of new cars,” says Bradesco’s Research and Economic Studies Department economist Renan Bassoli Diniz.
The prices of new cars have also increased throughout the year, albeit lower than for used cars. According to the IPCA, an index that measures consumer price inflation, new vehicles accumulated a 9.8% increase in the 12 months through August, while used cars rose 12.5%.
RACE
FENABRAVE’s vice-president José Maurício Andreta Júnior says he believes the used car market should close the year with over 11 million vehicles sold, thus confirming the best result in the segment’s history.
He says that for new vehicles it is difficult to forecast because it will depend on the automakers’ ability to deliver cars to dealers. The market forecast is that the shortage should persist at least until mid-2022.
More focused on new models, dealers are also looking for used cars on websites and offering owners more attractive prices. Before the pandemic, used cars were usually exchanged for new ones and passed on to dealers. Now, most dealers are looking for used cars (up to 3 years old) to boost business. There are groups opening exclusive used car dealerships.
USED CARS CAN COST MORE THAN BRAND NEW
Selling a car used for a year at a better price than that paid at purchase is something unheard of at a time of economic stability. “I only saw this during the time of hyperinflation,” says Webmotors’ CEO Eduardo Jurcevic, the largest online car trading platform in Brazil.
Models in great demand, such as the Volkswagen T-Cross and Gol, appreciated 27% and 24%, respectively, in one year, according to data from KBB Brazil, a company specialized in vehicle price research.
According to KBB, Cox Automotive do Brasil Director Ana Renata Navas says the high demand for used cars – and the consequent price appreciation – is partly due to the prompt delivery this segment offers consumers. Waiting times for new models range from 4 to 6 months.
Another factor is that the shortage of new cars also reduces the supply of used cars, because they are usually used to as a down payment for a new car. “With fewer used and semi-new vehicles available in store inventories, there is more pressure on prices,” she explains.
According to Ana Renata, if the semiconductor crisis persists past the first half of 2022, or worsens in the short and medium term, the factors cited “can put even more pressure on prices, to the point of cooling demand for used cars.”
AT THE LIMIT
Jurcevic believes that price elasticity reaches a limit. “I think it is very close to reaching a level where consumers will decide to wait a little longer because prices are too high,” he says. As new and used models have generally become more expensive, consumers will have to assess if it is worth trading in a car that has appreciated in value for another that has also appreciated.
Jurcevic says that this is Webmotors’ best moment in its 25-year history in Brazil. The company’s turnover increased over 30% through August, compared to the same period in 2020, and he believes that this performance will be maintained through December. The number of single users, 12 million per month, will also be surpassed.
The only reason it will not be better is because the number of advertised vehicles has decreased: “Before the pandemic we had 410,00 advertised cars, and today we have 330,000.”
AutoShow, the traditional used car trade show transferred a year ago from Anhembi to Expo Center Norte, in the São Paulo capital, has resumed this year the on-site sale on Sunday mornings, after not holding the event for almost the whole of last year.
AutoShow’s commercial director Leandro Ferrari says that the number of cars for sale has decreased, as well as the public, due to the pandemic. However, he points out that in 2018 and 2019, 30% of the 15,000 and 18,000 cars offered at the show were sold. This year through August, 52% of the 3,300 models on display were sold. Despite the rise of online sales platforms, he says the show continues to attract many buyers, with visits expected to increase once the pandemic situation is under control.
“The place is safe, there are many car options, negotiations are done on the spot, without intermediaries, and we have all the services to support the purchase, such as a cautionary inspection, financing partners, and a forwarding agent,” Ferrari says.
DECELERATION
Ferrari cites the Fiat Argo 2019 model as an example of the price overvaluation, particularly of semi-new cars. The model was being sold for R$40,800 (US$7,650) in September last year and now costs R$52,400 (US$28,000). “A slowdown in the speed of sales is starting to occur because today the value is beyond the means of most consumers.”
Kavak, a Mexican startup that buys and sells cars online with up to 10 years of use, began operating in Brazil in July with 2,500 units in stock. Today it has 3,500. The initial R$2.5 billion investment in the Brazilian operation should be increased next year with the expansion of operations.
In the last 4 years, several startups have established themselves in the country to operate in the second-hand car market. In addition to Kavak, Creditas – which bought Volanty -, InstaCarro, Carupi and the Argentine Karvi have joined.
USED CAR SALES EXPECTED TO DECELERATE NEXT YEAR
Projections from automotive industry associations and economists are that the used car market will grow at a more moderate pace in 2022, while the new car market tends to improve its performance. The shortage of semiconductors is expected to be controlled in the second half of the year.
Bradesco forecasts an increase of 2.5% in used car sales, to 12 million units, and of 7.5% for new cars, totaling 2.2 million units.
Bradesco’s Department of Research and Economic Studies economist Renan Bassoli Diniz points out that there is demand, but supply will continue to be hampered in the first half of the year.
He says that the new car market missed the best moment to quickly rebound and return to pre-pandemic levels, when there were financial stimuli from the government to the population and interest rates were lower. “The year 2022 will have less stimulus, higher interest rates, a period of electoral volatility, and a lower GDP growth rate than this year,” Diniz points out.
Webmotors’ Eduardo Jurcevic is more optimistic. A survey conducted by the company in July with 4,200 consumers shows that 75% of them intend to buy a new or used car this year, 7% gave up buying and 18% will buy in 2022. “Cars are more expensive, but there is still credit in the market,” he says.
LONG DELIVERY TIME LEADS TO CHANGE OF PURCHASE PLANS
Logistics manager José Cândido, 44, gave up buying a new JAC T50 model because of the time he would have to wait to receive it. After choosing the car he wanted, he was told by the dealer that the vehicle, imported from China, would be delivered in about 4 months.
The long delivery time led Cândido to choose another model, a used one, but with prompt delivery guaranteed by the dealership. “I use the car on a daily basis. As I have a wheelchair user in the family, I can’t wait that long for a brand new car,” he says.
After only 4 months, Cândido decided to change cars again. He sold the Chevrolet Tracker he had bought in April and used the money to buy another semi-new car, this time a Chevrolet Cruze.
“The price of a brand new car has increased a lot, it is not worth it for me. As my car was paid off, I traded it in and got another one instead; I only had to pay for the paperwork”, Cândido explains.
Like the manager, many consumers are choosing used models because new cars are in short supply, the waiting list is long, and prices are also rising.
Currently, the stock of new cars in automakers and dealers’ yards is enough for 13 days of sales, the lowest in the sector’s history. The stock that the industry considers balanced is about 30 days.
With no stocks and reduced production due to the difficulty in purchasing components, automakers are also readjusting prices, be it to pass on the cost of parts and raw materials, due to the high exchange rate or the higher demand in times of reduced supply.
Automakers are also prioritizing the production of models with a higher profit margin, such as SUVs and pickups, to the detriment of compact hatches.
NEW GENERATION
Brazilian consumers are running out of options when it comes to buying more popular models. Nowadays, the cheapest cars cost R$48,000 (Fiat Mobi and Renault Kwid). The new generation of cars have acquired greater connectivity, safety and energy efficiency items, and prices have tripled in relation to a decade ago.
A survey conducted by KBB Brazil, a company specialized in vehicle price research, shows that the 10 best-selling models in 2011 cost from R$24,700 (Chevrolet Celta) to R$39,400 (Volkswagen Voyage).
The prices of the 10 best-selling cars this year start at R$49,300 (Renault Kwid) and reach R$187,200 (Jeep Compass). On average, the current list’s values are 189.6% higher compared to 2011.
“Despite being more expensive, buying a new car today yields more (in one year) than savings and other investments,” says FENABRAVE’s vice-president José Maurício Andreta Júnior.