With a year of record price increases and crazy used car values now in the rearview mirror, the question on most dealers’ lips is ‘what’s going to happen to used car prices in 2022?’.
While the next 12 months are unlikely to be as groundbreaking as 2021, experts have told Car Dealer that 2022 will still be a strong year for second-hand motors with fluctuating prices and high demand from consumers.
The shortage of semiconductors and motorists proving to be stubborn to swap their car keys for public transport are two big factors – the former, some say, will only show signs of improvement this summer, but more likely in 2023.
In December 2021, Cap HPI and Auto Trader told Car Dealer (in videos which you can watch below) a softening of prices in November and December was purely traditional seasonal behaviour.
Cap HPI’s Derren Martin, for instance, said this slight dip in values was sharply set against a market that had seen rises of over 27 per cent since the beginning of January 2021.
But will this dip continue on a downward direction or will prices pick up? Is there a price crash on the horizon and will 2022 be a successful one for the motor trade?
We asked seven experts for their views – here’s what they had to say…
New normal will focus on margins and profit
This year, Cox Automotive believes that the market will not return to pre-Covid norms.
The ‘new normal’ for retailers in 2022 is likely to focus on margin retention and profit rather than chasing volume, which is currently unavailable.
Dealers are enjoying strong demand, but they are also less likely to offer discounts because demand looks likely to outstrip supply of vehicles for some time.
There is little chance of an abundance of new stock for two reasons: it will be around 2023 when the raw material and semiconductor shortages correct themselves, and the types of vehicles entering the wholesale sector are not the same as those in pre-pandemic times.
Prices are unlikely to rise at a similar rate to 2021 or fall, as signs of the supply-demand imbalance remain. Businesses will continue to demonstrate the financial health of a market with supply constraints, healthy demand and new car order banks.
Philip Nothard, insight and strategy director, Cox Automotive
Price correction? Yes – but don’t expect anything dramatic
While it seems certain there will be a correction to soaring used car prices in time, it feels unlikely any drop will arrive suddenly or dramatically, and even then it is only likely to happen when supply opens up, which won’t be this year.
We’re entering the third year now of massively restricted new car sales, meaning that supply of used vehicles will continue to be strangled. Used demand will remain strong – fuelled again by buyers eager to avoid public transport, plus new car buyers unwilling to wait for their next car, or simply unable to buy one in a timeframe that suits them.
This is now a long-term trend that will take time to correct itself – probably as long as it runs for and certainly years rather than months to finally fall back into any kind of status quo as we knew it pre-pandemic.
Jim Holder, editorial director, What Car?
Bursting bubble isn’t on the horizon
2021 was a remarkable year for the automotive industry. Used vehicle pricing saw double-digit growth and used cars flew off the forecourts in record time.
And the UK’s used car market looks set for a strong 2022, as it builds on the gains made in 2021. According to our latest data, the average price of used cars is now over £20,169 for the first week of January 2022, up 28 per cent YoY on a like-for-like basis.
It just shows that despite ongoing restrictions, our sector has remained resilient in the face of significant challenges and is on track for strong continued price growth well into the second half of the new year.
The two main factors fuelling this growth are continued new and used car supply constraints and strong consumer demand for cars, both of which show no signs of easing anytime soon.
In fact, a recent consumer poll we conducted showed that 33 per cent agreed that car ownership is now more important than it was prior to the pandemic. Therefore, claims of an imminent ‘bubble burst’ are failing to take these key dynamics into account.
Richard Walker, director of data and insights, Auto Trader
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Strong prices in 2022 – next year market will soften
After dealers reported a quiet Covid used car Christmas our first auction of the year generated a conversion rate of 85 per cent and saw a strong demand, although prices weren’t quite as hot as they had been in Q3 and early Q4 2021.
During 2022 the entire market will hinge on the dynamics of supply and demand. With no new signs of major sources of stock coming into the market dealers will have to compete against one another to buy the stock that is available which keeps prices strong.
Dealers have to keep reviewing their stock and decide whether to stick with what they have on their forecourt or twist and compete for fresh stock at the current prices.
The latter approach looks to be the most progressive option and buyers are becoming more confident to bid more money for cars as consumers understand they are in short supply and are more expensive as a result.
The current market will continue throughout 2022 we believe. 2023 is likely to see used car supplies increase and prices start to gently soften which is where dealers want to be more cautious to avoid stock owing them money.
Alex Wright, managing director, Shoreham Vehicle Auctions
Demand will remain high
The year has started on a positive note with buyer activity noticeably busy across eBay Motors Group’s platforms, with many of our dealer partners benefitting from robust enquiry levels since the traditional Boxing Day bounce in online searches.
Following the prime minister announcing his decision not to step up the current Covid restrictions, in-market buyers can now focus their attention on researching and purchasing their next car. And with ongoing supply problems in the new car market, this means demand for used cars will remain high.
Trade values are still tracking at record levels and many of the large dealer groups going into January stocked up, we can expect used car pricing to remain stable at the current levels for some time to come.
Phill Jones, head of eBay Motors Group
Used cars will get older
Many car makers are saying that it will be Q3 2022 before they are likely to see production back to 100 per cent of what it was previously and even then, they will have to fulfil the existing order book.
In the UK alone finance houses and leasing companies have tens of thousands of new cars in their order banks and it may take a few more months before those new cars arrive and the used cars move back into the used markets.
With an uplifted number of used cars coming off finance another year older due to contract extensions, or simply three months older due to the payment holidays consumers were offered in 2021, we see the average age of many used cars in the market continuing to rise in the coming year.
January is likely to be a strong used market, but we don’t anticipate the uplift in prices to be as high as the usual start to the year, simply because the average used car is already worth 40 per cent more than it was in January 2021.
However, demand and prices are likely to remain high during 2022 and will only start to soften if volumes get to the stage of supply exceeding demand.
We believe that this may well be felt into 2023 and in the meantime, vendors will continue to innovate to best represent their white label partners and manage their own risks in a market which continues to prosper.
Martin Potter, managing director, Aston Barclay
Some popular used cars may hold their value for longer than normal
Used cars saw some extraordinary price growth last year, with demand for some models so strong that they even appreciated with age. A five-year-old Mini Hatch, for example, ended up costing 15 per cent more in 2021 than a three-year-old one did in 2019.
This upward trend cannot continue forever, and prices are likely to stabilise in the coming months.
During the second half of 2021, severe shortages of components constrained the production of new cars – leading thousands of would-be buyers to focus their attention on the second-hand market instead.
The surge in demand for used vehicles has been a key driver of the rising prices of second-hand cars. When that demand cools, the pace of price rises is likely to settle too.
This doesn’t mean used prices will fall across the board though. Dealers will have to contend with some stock shortages for a while, as with fewer new cars being sold in 2020 and 2021, there will also be fewer nearly-new vehicles entering the second-hand market in 2022.
Some of the more recent models may therefore hold their value for longer than they would normally, particularly the most popular ones.
James Fairclough, CEO, AA Cars