In many economies in recent decades, including in the Middle East, items that had for previous generations been considered luxuries – such as home ownership, private cars and overseas holidays – became commonplace for middle-class households.
In recent years, that trend has been partially reversed. This is dramatically the case in personal car ownership. One statistic from the US stands out: The monthly repayments on a financing deal for a new mid-range car rose from around $400 to over $750 between 2019 and early 2023, Even a second-car in good condition would cost over $500 per month. Moreover, this comes at a time of rising interest rates and high inflation in other goods and services.
It is a global trend, not limited to the US, and follows a combination since 2020 of supply chain disruptions, chip shortages, and wider inflation. At the start of the Covid-19 outbreak in 2020 demand slumped owing to the lockdowns, car manufacturers had significant inventory, and offered discounts. They also curbed production, but then demand recovered more swiftly than expected and expanding production hit problems in the supply chain.
The shortage of microchips was particularly significant. The modern car is increasingly automated, It features around 100 microcontrollers. Taiwan and China constitute the principal manufacturing centres of microchips, and factories were closed for periods owing to the pandemic.
Other elements in the supply chain – shipping, logistics, labour, electricity – also increased in price. It was this combination of factors that sent the prices of new cars rising sharply between 2020 and 2022. In turn, the price of second-hand cars also rose, for example by 20% in the United Arab Emirates in the first six months of 2022. It is possible, in early 2023 in Qatar, to sell some car brands that are in excellent condition for the same price for which it was purchased as new during the early days of the pandemic. This is perhaps unprecedented in a sector known for price depreciation.
By the beginning of this year, with lockdowns ending, inflation having possibly peaked and an easing of chip shortages, there are some indications that car prices are dipping or have at least reached a plateau. But what has also happened during this phase has been that major automotive manufacturers have seen the profits rise, and there are signs that they are keen to stick with the adjusted business model of keeping inventory lean and margins high.
Inventories have come down from around 60-100 days before the pandemic to around half that figure by early 2023. An additional benefit for manufacturers is that the cost of storage is reduced. So while sales are down – from around 17mn to 14mn light vehicle sales per year in the US in the period 2019-2023 – these are at a higher margin. The indications are that the industry is just fine with this situation.
Such a state of affairs offers temptations to a low-cost competitor to try to gain market share, and some cars manufactured in China represent a lower-cost disruptor. They are not cheap by historic standards, but they have, nonetheless, become increasingly popular in Qatar and other Gulf states, offering good quality, high specifications at around half the price of the more famous German or Japanese brands.
There is also an issue around regulation of the market.
There is a ‘grey’ market in that some second-hand car dealers are able to buy new vehicles in bulk from the manufacturer and sell to the consumer at a significant markup. Some markets appear to have a concentration of suppliers, and it may be that more consumer regulation could improve competition.
For decades, the car market was relatively stable, showing incremental increases in sales and prices globally in line with the rise of middle-class households in many nations. The combination of Covid-19, related supply chain issues, and the push for lower emissions has resulted in probably more change in the past four years than in the previous 20. There are established trends towards more automation and cleaner energy, but prices and market dynamics are likely to be turbulent and unpredictable.

? The author is a Qatari banker, with many years of experience in the banking sector in senior positions.