Unintended Consequences

Unintended Consequences
10th May 2022 Team CSF

Unintended Consequences

At the beginning of the year, if someone had said to me the Vladimir Putin would invade Ukraine and that one of the results of this was that there would be a two-year wait for a new Porsche, I am not sure I would have believed them, nor seen the link between the two.

At a time of intense suffering for many, the first-world problem of a delayed Porsche delivery is obviously irrelevant as part of a wider world view. However, the knock-on effects of these delays are already being felt throughout the market and therefore worth discussion.

The initial shock to the invasion felt by the financial markets, has now recovered in the most part. In any case, the move to tangible assets in 2009-2010 that sparked the beginning of a boom in classic and specialist car values would be unlikely to be replicated at the moment as the market is now in a very different place. Rather than an increase in demand, we feel that what is more likely to have an effect on car prices at the moment are metals. Nickel, aluminium, palladium and stainless steel are all used in great volumes within new car manufacturing and their subsequent price rises, which have come about as a result of sanctions being placed on one of the largest metal exporters in the world, are already being felt. Russia supplies 20% of the world’s high-grade nickel, makes up 44% of Germany’s nickel imports and produces 40% of the global palladium market used in catalytic converters.

In March, Tesla raised the prices of every model in the range in the US by between 5-10% citing increases in the cost of raw materials and energy. As a result, used Tesla prices jumped 6% in two weeks to the 24th of March and the average new car price in the US increased, so too have the associated running costs. The benchmark Brent crude oil has reached prices not seen since 2008 and the resulting prices at the pump have been well publicised.

As well as raw materials, the invasion of Ukraine has also impacted supply chains. Leoni, a wiring harness manufacturer based in Ukraine supplies Volkswagen, Audi, Porsche, BMW and Mercedes-Benz. The company has seen productions fall to 30-40% of normal output and as it is not unusual for an individual car to utilise 5km of cabling. The effects of such a change in supply have been felt quickly. The supply restrictions have seen Porsche scale back production of the Taycan, Panamera and Macan models, Volkswagen has pushed back the release of the new ID5 model by a month and BMW was forced to close the MINI factory in Oxford for two weeks.

So, what does this mean for the market? Broadly speaking, with the above considered, prices should remain consistently strong across the board. In the new and nearly new markets not only is there potentially limited supply of new cars being registered, but those which are arriving have a higher price attached to them at the point of sale which will drive the used market further.

This is especially when you’re talking about the Porsche 911 GT3- a CSF customer favourite. For several reasons, the model is already subject to a degree of artificial supply constraints which lead to the current 992 model being advertised upwards of £230,000 (£100,00 over the list price). When you consider the additional issues the market is facing it is understandable that the previous 911 GT3, which listed for just over £100,000 in 2014, still has an entry point of £95,000 some eight years later. The cost to change is so high that the 991 continues to represent good value in comparison and the value are being supported by the ever-increasing price of the new model.

Where else could the market go? This is complex: if Russia continues to be cut off from the rest of the world by sanctions and most routes to markets are closed for metal exports then it will have to reply on trade with those countries not imposing sanctions. China being a beneficiary of cut-price steel, aluminium and nickel if it keeps trade routes open. This could mean that we see competitively priced Chinese cars enter the market in the next 12 months which take advantage of the lower cost of raw material while European manufacturers are forced to use more expensive raw materials that do not involve financial transactions with Russia.

Secondly, if certain UK car stockists are frozen out of the traditional banking infrastructure will there be an adoption of crypto currencies within the industry in the same way that click-and-collect car purchases we brought into the fore in 2020? A quick search of Autotrader shows some supercar retailers offering to accept crypto currencies as payment and one seemingly motivated private seller of 2017 Mercedes-Benz C632 Cabriolet advertise £49,995 states in their advert ‘Reduced from 60k so no offers. Will accepts crypto currently for’. In the car market it seems as though the theory of unintended consequences is alive and well.