How Russia’s invasion of Ukraine has disrupted used car markets

Over the last few years used cars markets faced issues since the semiconductor crisis compromised car buying chain. Although many car manufacturers believed that the problems had already peaked, it seemed 2022 would be the year when vehicles deliveries return to pre-crisis levels.

However, these plans were thrown into disarray by Russia’s invasion of neighboring Ukraine, which left the automotive industry facing an even bigger crisis that will be much harder to solve. Matas Buzelis, an automotive expert and the head of communications at auto-data company carVertical, shares his insights on the situation.

Damaged supply chains

The expert on the automotive industry, Mr. Buzelis points out that although Russia’s new car market is not the largest in the world, it plays a significant role in the automotive supply chain.

Russia exports valuable components to the automotive industry. Germany, for example, relies on Russia’s titanium, iron, and palladium. Also, with 108 million tonnes of iron ore produced in 2021, Russia is the world’s fifth-largest iron ore producer, supplying European steel makers who are now facing higher prices and possible difficulties obtaining the metal elsewhere.

Russia’s invasion has also had an impact on the automotive industry in Ukraine. For example, German carmakers such as BMW and Volkswagen use a large Ukrainian supplier of wire harnesses. Furthermore, Ukraine is the world’s third-largest producer of nickel and aluminum, two highly valuable resources required in battery and EV components.

Finally, Ukraine produces nearly 70% of the world’s neon gas required for components such as microchips, which are already in short supply.

More difficult to get a good used car

Buying a used vehicle was already difficult and expensive in 2021, and by the looks of things, it will become even more difficult in 2022. While the used car market keeps growing, used car dealers are facing a shortage of vehicles.

One of the main reasons for the current situation is the crisis in the new car market. Manufacturers are starting to limit vehicle production to keep manufacturing lower, but steadier. This change in new vehicle manufacturing is slowing down the flow of cars into the used car market. Car owners are therefore postponing selling their vehicles or not getting rid of their cars at all.

“Those interested in buying a second-hand car are now choosing from the most limited and also the most expensive offers in the used vehicle market. However, the limited supply of used cars doesn’t mean buyers should forgo procedures protecting them from scams. Contrarily, buyers should inspect the history of each used vehicle, since the selection is very limited”, – says Mr. Buzelis.

As the head of communications of carVertical explains, used car dealers may buy whatever they can get, with less regard to the car’s condition. The risk of purchasing a used car in poor condition may be much higher than it was, say, a year or two ago.

Unpredictable used car prices

In 2021, used car prices had already reached all-time highs. Even though they stabilized and even began to fall toward the end of the year, the Russian invasion of Ukraine has created an unprecedented situation in Eastern Europe’s used vehicle market.

For years, used car buyers from Ukraine have flocked to Poland, Lithuania, Slovakia, and Hungary. While newer cars were in higher demand in these countries’ internal markets, Ukrainians used to buy many cars that were more than ten years old, especially those with fuel-efficient but “dirty” diesel engines.

On the other hand, the reduced customer flow will alter the used vehicle market in Ukraine’s neighboring countries. The prices of older cars are likely to fall as dealers seek to mitigate their losses to adapt to the current situation.

The influence of fuel prices

Fuel prices have surpassed the critical €2 per liter mark in many European countries, sparking interest in changing daily habits.

“Rising fuel prices will cause some drivers to commute less. People may shorten their annual mileage by choosing public transport or other alternative means of transportation. Fewer kilometers would translate to fewer accidents, leading to savings in running costs”, – says the carVertical expert.

This would decrease the number of vehicles on the road, but higher fuel prices also increase the interest in fuel-efficient vehicles.

It means that vehicles with diesel engines can spark interest due to unbeatable fuel consumption on the motorway. However, this trend will be limited to countries with no taxation on vehicles with more CO2 emissions.

Increased fuel prices will encourage people to invest in used electric vehicles. Despite rising energy prices, the total cost of ownership of electric cars remains lower, and it can be even lower if solar energy is used for charging. Solar power charging is estimated to save 600-800 euros per year.