Shortage of new cars causes older models to soar in value

Dearth of computer chips delays arrival of latest cars into UAE's showrooms

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A shortage of new cars arriving in the UAEis pushing up the second-hand car market to unprecedented levels, traders said.

The issue stems from a global scarcity of computer microchips used inside the vehicles.

A lag in the shipping of new cars, with some high-end vehicles requiring a two-year wait, has forced people to keep older vehicles for longer.

The knock-on effect has affected the second-hand car market, meaning some cars still cost the same as they would have in 2020, despite being two years older now.

The main dealers have nothing to sell. We are buying back the same cars we sold a year ago for the same price
Talib Alrubai, chief executive of Alba Cars

Ryan Hughes, co-owner of RMA Motors, a car dealership specialising in prestige sports cars in Dubai Investment Park, said it was a simple issue of supply and demand.

“On some vehicles, people are paying the same price for a car that they did two years ago,” he said.

“For example, there is an 18-month waiting list for the latest Range Rover, so that keeps value retention on used models.

“Also, there is a lot less depreciation on certain models, from 15-20 per cent down to just 10 per cent, or even just 5 per cent.”

Much of the delay in the shipping of new models is a result of global shortages of computer microchips.

They are used in semi-conductors that help improve a vehicle’s efficiency and lower emissions, but many have been swallowed up by a surge in demand for computers after the pandemic forced many people to work from home.

In July, Ford limited production at many sites as a result of the shortages, with the company’s Chicago Assembly Point shutting down completely for a month in 2021.

Eight Ford plants were affected across the US, with production cut by about 1.1 million vehicles last year.

Jaguar Land Rover also mothballed production at two of its main UK car manufacturing plants in April 2021, owing to the shortage of computer chips.

“We just can’t get our hands on new cars, so we are buying back cars we sold a year ago for the same price,” said Mr Hughes.

“Factories are prioritising their bestsellers, so there are long waiting lists for other vehicles.

“The Jeep Wrangler market is through the roof. It is the most expensive I have seen it in five years.

“People who bought cars two years ago are making money if they sell now.

“The market was saturated four years ago, but it will take at least 18 months to correct. It is a good time to sell.”

A 2017 Jeep Wrangler short wheelbase typically cost about Dh75,000 ($20,500) two years ago. Now it is priced closer to Dh90,000.

Other second-hand vehicles on the forecourts retaining value include the Audi S3 and Volkswagen Golf R.

Neither vehicle has depreciated in value since 2020, with models from 2016 still selling for up to Dh80,000 today. A new high performance sporty VW Golf R costs about Dh160,000.

Talib Alrubai, chief executive of Alba Cars in Dubai, said shortages had forced a change in the buying habits of dealerships.

“The main dealers have nothing to sell, so they are going out into older car markets with more kilometres on the clock,” he said.

“It is becoming very competitive, and used cars are increasing in price.

“We are buying back the same cars we sold a year ago for the same price.”

Alba Cars deals in mid-luxury vehicles, with demand for European brands on the rise, Mr Alrubai said.

“Maserati are also in demand in the used market for their reliability, as is Alfa Romeo,” he said.

“It is a similar story for Mercedes, Porsche, BMW and Audi.

“The new shape Range Rover has a two-year waiting list, where usually the wait would be three to six months.

“An online car sales site recently sold a new model for more than Dh1.5 million, when the list price would usually be just Dh800,000.”

As Dubai has no controls on the number of vehicles that can be exported, cars that are in demand are also being shipped out to other markets, adding to shortages.

Strong collectors market for rare cars

Porsche 911 models have also appreciated in value, while others such as a 2013 911 Carrera S bought two years ago will sell today for the same price, about Dh200,000.

It has created a booming market for collectors like Dave McCay, a passionate British car fanatic living in Damac Hills, who has recently bought and sold cars including a Porsche, McLaren, Jaguar and Aston Martin.

“There is still more value in cars here in terms of bang for buck than you can get in almost any other country,” he said.

“But the mid to high-end car market has suffered in terms of value or good deals as more and more dealers have entered the market.”

He said the transition towards electric vehicles was is also likely to have a big impact on the second-hand car market in the years ahead.

“The drive to electric has pushed the market forward and not only for Tesla but all the other up-and-coming brands like Polestar and Lucid,” said Mr McCay.

Updated: June 02, 2022, 10:29 AM