10:48 am, August 14, 2020
Used car prices have been rising steadily ever since the lockdown eased and buyers flooded the market.
While many consumers find that hard to believe, the prices of cars being advertised by dealers and subsequently bought for – as well as the rising price of cars at auctions – are testament to this phenomenon.
While the rise might seem unusual against a back drop of a country in recession and rising unemployment, it isn’t too hard to believe.
Look at the facts: New car sales are down so there are less part exchanges entering the market. Lease companies are holding on to their cars longer too and haven’t been able to get them returned during lockdown.
This has hampered supply.
Add in increased demand – from customers cutting their bills and downsizing, new used car buyers swapping public transport for the isolation of a car instead, and many people blowing holiday cash or money they’ve saved during lockdown on the car they’ve always promised themselves and you’ve got a cocktail for rising prices.
High demand, short supply means one thing: Prices going up and broadly, across the used car market we’ve seen exactly that.
Car Dealer has posted countless stories of used car price rises. But every time we do – someone predicts a fall. And while one is inevitable, many believe the rise in unemployment and the end of the furlough scheme could be the catalyst that drags prices down.
So will furlough bring the price of used cars tumbling? To find out once and for all Car Dealer exclusively polled our panel of used car experts, from classified advertising sites to auction house, to find out.
Here’s what they said.
Cap HPI: Used car prices are up six per cent on this time last year
Derren Martin, Head of Valuations, Cap HPI
With an economic downturn inevitable and unemployment rising, consumer confidence is likely to be more heavily affected by the Covid-19 crisis than it is currently. Big-ticket purchases could go on the backburner.
There is likely to be an increased reluctance to pay current prices, particularly for more expensive, younger, mainstream cars. Older or smaller cheaper cars may be less affected.
Used car prices are currently relatively high. While values dropped in the immediate run-up to lockdown, we have since had two-months of lockdown and no value movements and then many prices increasing in June and July.
All of this has meant average prices are some six per cent higher than they were a year ago.
History shows us that increases in price are unsustainable over a medium to long period. Once logistics improve further and lease extensions come to an end, there could be some more volume come back into the market.
Auto Trader: Used car price will even out not fall off a cliff
Richard Walker, Data and Insights Director, Auto Trader
With so many variables at play it’s hard to predict how the supply and demand dynamics may shift.
Supply constraints are easing and the end of the government’s furlough scheme in October, as well as the broader economic uncertainty of a recession, is likely to affect consumer demand.
However, our research does point to new opportunities opening up with more people relying on their own private vehicles to commute.
Out of 1,300 visitors to our marketplace who used public transport prior to lockdown, 69 per cent said they would find an alternative means to travel once they returned to the office. As a result, while we don’t expect to see any dramatic fluctuations in used car prices, it’s likely the growth we’ve seen in recent months will begin to even out rather than continue to accelerate each month.
Cox Automotive: Combination of factors will bring used car prices down
Philip Nothard, Customer Insight & Strategy Director, Cox Automotive UK
Although the end of furlough will have an influence on the sector in terms of both consumer demand and strength of the dealers, I believe there will be many other factors which will influence a weakening of car values.
Used car values and conversion have already shown signs of easing, however, this is from a very strong position and returning to a more stable level.
Used values are at an unseasonal high level, but we need to keep in mind that the market lost two months of activity and valuation movements.
The current levels of supply are just about right to support the market demand, but the demand for older stock with poorer grades has seen a considerable decline, while ready-to-retail units remain very strong.
AA Cars: Downward pressure on prices incoming
James Fairclough, CEO, AA Cars
With economists forecasting that Britain’s unemployment rate could climb sharply as the furlough scheme ends, both the demand and supply of used cars is likely to be affected.
Periods of financial uncertainty typically dampen both demand and used car values, as drivers who own their vehicle opt to keep their current car for longer, and dealers compete hard on price.
Equally, as people’s financial circumstances change, we may also see some drivers with an outstanding car finance contract opt to hand back their car earlier than expected. There is also a possibility that rental car companies will sell off surplus vehicles on the used market. Both of these factors would boost supply.
Typically such a combination of weak demand and strong supply has been shown to put downward pressure on prices. However, with more people returning to work and many still wary of public transport, demand for cars — and especially good value used cars — is likely to continue.
Motorway: New cars more likely to be affected by end of furlough
James Bush, Sales Director at Motorway
We don’t expect to see a softening in demand for used cars when furlough ends. It’s the new car market that’s likely to suffer.
With an inevitable rise in unemployment UK-wide ahead, this will likely accelerate the surge to used cars we have already seen. Many buyers will shift away from purchasing new cars on finance – as large car loans are harder to get and feel risky without a job.
If they need a vehicle, a lot of buyers who usually buy new will look at the used market to find better value.
We predict growth will be strongest at the lower to medium end.
eBay Motors Group: Lower priced used cars will hold their value
Marc Robinson, Head of Sales, eBay Motors Group
While the furlough scheme has proved to be an invaluable way to protect employment for many workers, its withdrawal at the end of October opens us up to uncharted waters.
With the Office for National Statistics reporting UK employment falling in Q2 by the largest amount in over a decade, the ending of the furlough scheme could see further job losses.
Against this backdrop the propensity for consumers to buy used cars will be impacted. However, what we could see is the demand for lower priced used cars maintaining to the end of the year. If this does happen there is the possibility of prices for these particular vehicles remaining strong. At this point in time it is much too soon to call so the coming weeks will be crucial.
Aston Barclay: Furlough ending could boost other areas of used car market
Martin Potter, MD, Aston Barclay
I don’t see much difference once furlough ends. Since dealerships have reopened, used prices have either remained level or have increased due to demand and supply.
At the end of furlough, if the retail demand changes the market may return to a depreciating asset situation. This hasn’t been the case in recent months whereby values have increased due to supply not satisfying demand, but like all other businesses if the demand drops and supply outstrips demand then prices will fall.
Even with furlough ending many people will still purchase used cars but might look for alternative age and models that are either more economical or cheaper in overall value.
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