Every year, just over a million Mexicans decide to buy a new car. Until before the pandemic, it was possible to take advantage of inventory cycles to get a better price: there is a strong correlation between the arrival of the model of the year with the price drop of the previous model.
So an ideal time to buy a car was in the second half, or even in January, when dealers are clearing out their inventories of unsold cars from the previous year to make room for the latest models. To achieve this, dealers often offer discounts and promotions, which means an opportunity to get a new car at a good price.
But the pandemic has upended these inventory turnover cycles, making auto prices volatile and vehicle supply unpredictable.
According to January sales figures released by Inegi, several mass-market manufacturers are still reporting significant drops in sales, even compared to already low 2021 numbers. Volkswagen, Stellantis and Nissan posted double-digit declines as, among other things, they did not have enough inventory to supply the demand.
Analysts do not expect the situation to improve in the first quarter. “The supply chain problem is not going to normalize this year, it may not be normal until December 2022. Surely inflation in 2023 will be a little more stable,” said Rafel Amiel, director of the Economy and Risk practice. Country for IHS Markit.
With that in mind, the question that arises is: should I buy a car in 2022? Of course, the best time to buy a car varies according to the unique financial situation of each person, which is not necessarily aligned to the macroeconomic state, however, it is important that right now three situations are taken into account that could interfere in the process of purchase of a new vehicle.
price and inflation
When asking for price reports you will quickly notice that the car you want is now significantly more expensive than it was a couple of years ago. This increase is the result of widespread inflation that has led to the highest cost of raw materials per vehicle since 2011, according to a Bank of America global research report. The crisis began last year, when the prices of key raw materials, such as steel and copper, began to rise.
Since then, the costs of raw materials have increased to such an extent that they now represent a significantly higher percentage of the production price of a vehicle: 11% compared to 6% in April 2020, at the beginning of the pandemic.
This increase in the prices of new vehicles has another component: container costs have skyrocketed between 300% and 400%, compared to pre-pandemic prices.
Some of the increased logistics and material costs have inevitably been passed on to model prices. The report from the Mexican Association of Automotive Dealers, which tracks automotive inflation on a monthly basis, has registered 9% year-on-year as of the second quarter of 2021. This is the highest index since April 2009.
Financing and interest rates
But Gerardo San Román, director of Jato Dynamics, the financial culture of Mexicans is not the most focused on looking for low prices, as is the case in other countries such as Germany. “Mexican consumers are willing to pay more, compared to other markets where there is a greater financial culture, as long as they get the goods they want, and credit is that bridge,” says San Román. “The price is not really the trigger for purchases, but the financing,” he adds.
Longer financings are another alternative that manufacturers are promoting to dilute inflation through a lower monthly payment. But with interest rates rapidly returning to pre-pandemic levels of 14% or 15%, long financing becomes much more expensive, leaving the client in debt longer and paying more at the end of the term.
Wait time
Anyone visiting a car sales floor will notice that there are fewer cars on display than there used to be before the pandemic. The cause is a shortage of chips, which has limited the ability of manufacturers to produce vehicles at the same rate as before Covid-19. With a little luck, the visitor will find available units of the model they want, but in most cases they will have to put themselves on a waiting list for two or three months.
During the first month of the year, distributors sold 78,585 units, 3.8% less than in January 2021, when they sold 81,657. The IHS forecast is that during the first half of the year a sales volume of between 75,000 and 80,000 units per month will be maintained.
