Recent news about a possible reduction in the EURIBOR rate suggests that the economy will pick up in the second half of 2024. A particular surge is expected in the used car segment – it always reacts strongly to any changes in the credit sector and is several times larger than the new car segment. „Economists are already noting an increase in transactions in the real estate sector, especially encouraging is the interest among young people (20-30 years old). The used car market follows suit, and in the second half of this year, we expect market activation,“ comments Edgars Cērps, founder of the largest used car dealer in the Baltics, „Longo Group.“
According to experts, high inflation in the eurozone and a decrease in EURIBOR rates stimulate the used car market for several reasons:
1. Impact of high inflation: prices of both new and used cars are rising due to increasing costs of spare parts and technical services, as well as overall business expenses. Additionally, people are holding onto their cars longer, reducing the supply in the market and further driving up prices.
2. Decrease in purchasing power: inflation reduces the real incomes of residents, automatically shifting the market away from new cars, which become even less affordable. „As purchasing power decreases, demand shifts to models that cost less… We, at Longo Group, observe this in all three Baltic markets,“ adds Cērps.
3. Impact of decreasing EURIBOR rates: by shifting towards used cars, consumers find auto loans more accessible with the decrease in EURIBOR rates. This can stimulate demand for used cars as monthly loan payments become more manageable for a wider range of people.
„Longo Group’s“ founder explains that lower interest rates theoretically can stimulate an increase in new car sales, but this is not characteristic of the Latvian market – we have one of the oldest car fleets in Europe, with an average car age of around 14 years. This indicates low purchasing power among residents, so private individuals are particularly cautious and unlikely to rush to car dealerships to buy new cars.
Despite inflation, the decrease in EURIBOR rates has a very positive impact on the demand for used cars, as people seek the most favorable conditions for personal transportation purchases.
Inflation combined with a decrease in EURIBOR rates and economic uncertainty creates a situation where buyers increasingly opt for cheaper and more economical used cars to reduce expenses and avoid large loan commitments. Thus, high inflation may lead to an increase in used car prices, but the decrease in EURIBOR rates can maintain demand due to more accessible credit.
A representative from „Longo“ predicts that brands such as „Toyota“ (especially the „Corolla“ and „Yaris“ models) and „Honda“ (such as „Civic“ and „CR-V“), as well as compact models popular among young people and beginners – „Volkswagen Golf,“ „Ford Focus,“ and „Škoda Octavia“ will be popular in Latvia. Therefore, more economically, reliable models with good value for money, as well as compact cars and crossovers, will be purchased in Latvia.
In conclusion, the combination of high inflation, decreasing EURIBOR rates, and economic uncertainty is expected to drive the demand for used cars in the market. Consumers are likely to opt for more affordable and economical options, leading to a shift towards popular models that offer good value for money and reliability in the used car segment.