7:26 am, February 15, 2023
What goes up, must come down – but just when will buoyant used car prices come crashing back down to earth?
After two years of growth, used car prices have been inflated to record highs.
Auto Trader says the average price of a used car shot up 19 per cent last year, and this came off the back of strong growth in 2021 of 15 per cent.
Compare used car prices now to where they were two years ago and they’re up 35 per cent.
In 2019, before the pandemic turned the industry on its head, the average price of a used car advertised on Auto Trader was £12,999 – last year it was £17,548.
And the price rises are still happening. In January, Cap HPI saw trade values of used cars go up by 0.1 per cent. Auto Trader reported a 0.2 per cent increase.
But with consumers facing a cost of living squeeze, volatile energy and fuel prices and a recession – albeit what now looks likely to be a shallow one – does this mean used car prices are going to plummet? Well, not quite.
Car Dealer has been speaking to experts from across the industry to gauge their opinion on what they think will happen next to used car prices in 2023.
First we need to look back at the biggest reason for soaring used values and that has been reduced supply, coupled neatly with continued steady demand from buyers.
While that demand has tapered a little as economic pressures have increased, this has been outweighed by the fact there are still simply not enough used cars in the market.
The new car market has sold two million less cars in the past three years due to production issues caused by the Covid-19 pandemic and the subsequent shortage of semiconductors also hit car production figures.
‘There are more than two million missing cars from the used parc due to registration shortfalls in the last three years,’ explained Derren Martin, director of valuations for used car pricing experts Cap HPI.
‘Add in our forecast of circa 1.85m new car registrations this year compared to over 2.3m in 2019 and there will continue to be a shortage of used cars for retailers to buy.’
Martin is closer to the used car data than anyone in the industry and believes the booming prices seen since 2021 won’t come tumbling down any time soon.
He says that even rising interest rates pushing up the cost of car finance has done little to dampen consumer demand.
He said: ‘We believe that used car values will hold up relatively well, and there certainly won’t be a crash off the back of those extraordinary increases in 2021.’
Asked to put a figure on what percentage drop he thought used car prices would fall this year, Martin was reluctant, as he said the variables could make it misleading.
He added: ‘A normal range of depreciation for a year would be somewhere around the 3-5 per cent mark and we believe this year will be at the strong end of that, but with many variations within those averages.’
Will used car prices crash in 2023?
Used car prices have been so unpredictable in recent years that even the experts are reluctant to predict what percentage they might rise or fall this year.
Asked directly what percentage movement we’d see this year, few would give Car Dealer even a best guess when asked.
Auto Trader’s Ian Plummer said putting a figure on it was a ‘fruitless exercise’, but explained what was clear was that ‘supply dynamics’ were having the biggest impact on pricing.
He said that demand from buyers remains ‘robust’ and that was outweighing the number of cars in the market. New car production isn’t forecast to get back to any semblance of normality until later this year and even when it does it will have little impact on the used car market. That’s because those cars will take a while to filter through to the used forecourts.
Plummer added: ‘With no imminent improvement in supply, the only thing that can truly impact the situation would be a sizeable drop in consumer demand.
‘But while it may soften over the coming months, unless there is a substantial fall in car buyer confidence driven by very high levels of unemployment or a very significant rise in interest rates, demand should largely be shielded from economic turbulence.
‘That’s because for most people, a car is a fundamental need – even more so in the wake of recent train strikes.’
Car dealer Umesh Samani, boss of Specialist Cars in Stoke, and the chairman of the Independent Motor Dealers Association, says it’s increasingly hard to find quality stock – and it’s this, he thinks, that’s really keeping prices high.
‘I cannot see a massive drop in used values as quality cars are still in very short supply,’ he told Car Dealer.
‘We have to remember three years ago we went into the start of lockdown and hardly any new cars were registered, so three-year-old and two-year-old cars are just not about.
‘I feel they won’t go up in value like the 30 per cent or so increases seen previously, but they’ll stay similar with small drops of 3 to 5 per cent.’
Nigel Hurley, CEO of used car supermarket Carshop, said he believes used car prices will end the year flat.
Hurley – who will be speaking at our forthcoming Car Dealer Live conference – said he thinks used cars will increase slightly in the first six months of 2023, then drop back again in the latter part of the year.
He added: ‘With regard to putting a figure on overall market movement we must acknowledge that EVs will have a detrimental effect, but the strength of the sub-£10k sector should outweigh this so we predict the market will be flat on last year.’
Used electric vehicles have certainly been the abnormality when it comes to growing used car prices. They’re down -11.9 per cent in the last year and the drop has accelerated in the last four months. Experts have warned of a worrying downward spiral for used EV prices.
‘It appears the shortage of stock overall is holding prices high, except in the case of used EVs which have recently seen a dramatic increase in supply,’ added MG and Suzuki dealer Robin Luscombe.
Franchised group boss Paul Hendy, who represents 21 brands across the south coast, said he thinks used car prices will remain ‘on balance’ this year.
‘I believe they’ll be fairly flat,’ he told Car Dealer. Hendy will also be appearing on stage at Car Dealer Live.
Used car prices could ‘rise 5-10% in 2023’
What Car? editorial director Jim Holder said predicting which way used car prices were going to go with any certainty was a fool’s game.
‘For as long as customer demand holds up the environment is there for used car prices to stay strong,’ he said.
‘Three years on from the pandemic there’s far fewer lease returns coming back into the market, restricting supply, while the significant rises in new car prices leave significant headroom for used prices to follow suit.’
Shoreham Vehicle Auctions boss Alex Wright said the lack of 20-plate and 21-plate cars in the market is keeping prices high – and gave Car Dealer the most bullish of predictions for prices in 2023.
‘We predict prices will rise between five and 10 per cent towards the end of 2023,’ he said.
‘From there on it will be dependent on fuel price and inflation levels during Q4 and in Q1 2024.
‘The ceiling for used prices will be based on a rising number of low price Chinese ICE and EVs coming into the market.
‘To put things into perspective a new petrol MG starts at £13,000 and a new MG EV at just under £27,000 with a seven-year warranty. Used prices for three-four year old cars cannot match or rise above those prices otherwise they will no longer be competitive.’
Fellow auction house Aston Barclay also predicts used car prices will rise this year, ‘perhaps around two to three per cent’.
The team behind used car marketplace Motorway.co.uk also remains bullish. Although boss Tom Leathes wouldn’t put a figure on a rise or fall, he thinks prices will ‘remain strong’ driven mostly by ‘continued new car supply shortages’.
‘This year will be the third year of new car supply challenges, resulting in a material shortage of new cars to market, ultimately sustaining the price of used cars,’ he added.
Carshop’s Hurley can’t see anything moving the dial dramatically on used car prices either.
He said: ‘We can’t see any reason for any radical drops. If suddenly an oversupply of a particular new car combined with an appealing finance campaign is launched by a manufacturer, that would be the only thing to have an immediate impact on used values.’
Cargurus industry expert Kevin Roberts said there was ‘an expectation used car prices will trend down’, but was another who wouldn’t put a figure on it.
‘The current market dynamics make it difficult to give a singular percentage calculation,’ he said.
‘We’ve already seen prices soften in the middle of 2022 before rebounding at the end of the year. Expectations would be that we should see some softening in the coming months, though the question will quickly become can we sustain it, or will we see another rebound like last year.’
Cap HPI’s Derren Martin is quietly confident used car prices will continue to remain high for some time yet.
‘With consumer demand seemingly buoyant despite cost-of-living concerns and interest rate rises, retailers will continue to seek out stock to replenish online and physical forecourts,’ he told Car Dealer.
‘With this in mind, we believe that used car values will hold up relatively well, and there certainly won’t be a crash off the back of those extraordinary increases in 2021.
‘There will be some market adjustments for individual cases where values are currently unsustainably high, particularly where logical relationships need to be repaired, but the overall market will remain far higher than it was in 2020.’
Martin expects ICE cars to continue to gently increase in price in the short term, then all is riding on the March 23-plate change.
‘Prices will depend on the volume of March new car registrations, which will likely be higher than the previous three years, but not as high as pre-Covid times,’ he added.
‘Easter can often be a watershed for used car values, with more volume appearing and consumers going on vacation rather than spending on a new car. At that point values may well have peaked and a small downturn appear. This will not be dramatic, however.’
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