War has many trickle-down effects. The conflict in Ukraine, for example, is putting significant upward pressure on used-car prices in Eastern Europe, says Autovista.
The war in Ukraine will have a bigger impact on the economies in the east of Europe than on those in the west, and not just because it’s closer to the conflict zone.
Except for the three Baltic states plus Slovakia and Slovenia, all countries in Eastern Europe are outside the Eurozone, which means their individual currencies are even more vulnerable to inflation. (Croatia and Bulgaria are in ERM II, so their currencies are linked to the euro, providing some stability).
Even before the Russian invasion, supply-chain problems and rising prices for raw materials were pushing up inflation in economies around the world. For example: already in February, the Czech Republic was hit by double-digit inflation (11.1% on annual basis). That was the high end of inflationary pressure in Eastern Europe. But even Slovenia, on the lower end of the scale, still hit 6.9%.
Purchasing power: down
As inflation rises, purchasing power diminishes. This is having a downward effect on the demand for new cars across Eastern Europe – a trend amplified by rising list prices for new cars.
However, for now, demand remains higher than supply. The war in Ukraine has made those pre-existing supply issues only worse. So, prices for new vehicles will remain high, and slip out of reach for an increasing number of potential buyers.
Used car demand: up (for now)
With demand strong but supply weak (and prices high), the demand for cars in Eastern Europe is diverting from new vehicles to used ones. This is pushing up Residual Values – but not by too much, Autovista says: the rise in RVs is being softened by the fact that inflation is also increasing the running cost of used vehicles (especially fuel prices).
Also: the war itself is diverting people’s attention away from more mundane things like buying a car – used or new. As the situation stabilises, that may change in the months to come. This may again normalise the market, again driving more buyers towards new cars instead of used ones.
Until that happens, it seems Eastern Europe provides certain opportunities for remarketing used vehicles, in particular those with excellent fuel economy.