1:04 pm, September 25, 2023
What’s going to happen next to used car prices is becoming harder than ever to predict.
In this special investigation, Car Dealer spoke to a wide cross section of experts – from pricing specialists to advertising gurus – who were asked for their thoughts on the used car market.
But what was clear is that unusually there’s no common consensus as to when used car prices will go down.
Our panel was asked whether they thought used car prices will drop in 2023 and to predict how the second hand car market might perform in 2024 too.
One of those closest to used car pricing is Derren Martin, director of valuations for Cap HPI. His firm looks at the trade prices in the market – the amount dealers pay each other for used cars.
Martin told Car Dealer that he thinks 2024 could see used car prices actually finish the year HIGHER than where they will end up in 2023.
‘As we go through the second half of 2024 into 2025 we will start to see the full effect of more than 2.3 million missing cars from the reduced new car registrations through the pandemic – and the later supply issues – translating into significantly reduced used car supply,’ he told Car Dealer.
He predicts used car prices in 2024 could end the year around one to two per cent higher than where they finish 2023.
‘It should be noted that further market adjustments, slightly more than normal seasonal expectations, are expected between now and the end of this year, though,’ he added.
In short, Martin predicts slight drops this year before used car prices rise again in 2024.
While many think the cost of living and rising interest rates have had a detrimental impact on consumer confidence, it has not translated into less people shopping around for used cars.
In an interview with Car Dealer, Auto Trader’s chief executive Nathan Coe said the advertising marketplace had not seen consumer interest drop off.
He said: ‘We’ve had 14 per cent more people on Auto Trader in August than what we had last August, and that was already busy. So demand feels really good. And dealers are selling cars slightly quicker than they were last year, so it feels like it’s holding up well.’
With inflation and interest rate rises appearing to have peaked – and subsequently the mortgage market improving too – crucial factors that affect consumer confidence are starting to ease.
Martin added: ‘The used car market has shown remarkable resilience over the past few years. Inflation should be reducing through 2024 and although interest rates may be slow to come down, they will have passed their peak and are likely to be moving down the news agenda.’
Martin predicts used car prices will drop back into a more normal pattern in 2025 when the market gets used to the reduced supply it will have to cope with next year.
Phill Jones, chief operating officer, eBay Motors Group, agrees the supply issues seen during Covid and directly after the pandemic will have a big impact next year.
The reason used car prices are so high can be directly linked to how car production was scaled back drastically during 2020. In the years that followed, a semiconductor crisis saw far fewer new cars made and sold and those combining factors have seriously reduced the number of vehicles in circulation.
Those new cars eventually become used cars and the shortage that affected the new car market is soon to have knock-on ramifications in the secondhand market.
Auto Trader predicts there will be nearly 40 per cent fewer three-five year old cars in circulation at the end of 2024 compared to the end of 2019, all as a direct result of the cars not made during the pandemic.
Jones said: ‘Although we have seen used car prices stabilise, with some slight reductions in 2023, we do not think that this will lead to major price reductions in 2024.
‘The supply constraints that have propped up younger used car prices in the last two years are set to continue as we start to feel the real pinch from the lower car production in 2020 and 2021.’
Heycar’s CEO Karen Hilton is also bullish: ‘If the economic outlook remains positive and there are no major shocks, we anticipate a gentle upward trend in used car prices.’
Like Cap HPI, Hilton is also predicting rises in used car pricing next year ‘somewhere between the 1.5 to 2.5 per cent range’.
Are used car prices coming down in the UK?
Not everyone agrees used car prices are going up in 2024, though. Other experts Car Dealer spoke to think next year could result in slight falls.
Mark Oakley, director of AA Cars, said the market was ‘finely balanced’ but he is confident the huge price rises seen in the last few years will not be repeated.
These rises were caused by demand for used cars far outstripping supply while many new car buyers, not content with waiting for a new model that could take months to arrive, turned to the used market instead.
‘We’re unlikely to see a repeat of the big price rises recorded over the past two years,’ said Oakley.
AA data shows the average price of the most popular used cars in the UK fell nearly two per cent in the first and second quarters of 2023. He expects those falls to continue.
Auto Trader data guru Richard Walker, who studies the retail prices of used cars – the price dealers advertise their cars to consumers for – said the firm is still recording ‘modest’ growth in values.
However, he said that is ‘beginning to slow’ and predicts 2024 used car pricing will ‘look flat’.
Walker explained the devil is in the detail with three-to five year old cars seeing stronger price growth as these are the models made during Covid and the ones in short supply.
‘Older age cars should see strong levels of demand and, with supply restricted, prices are likely to remain robust,’ he told Car Dealer.
‘It’s also worth remembering that supply levels in this age group are still a long way off pre-pandemic levels.’
Walker and his team are also positive that the used car market will remain stong and, despite the economic headwinds, consumers will still be buying used cars.
He added: ‘With what we know today, demand looks robust and, although there are conflicting macroeconomic data points – both positive and negative – there’s no data to lead us to believe that demand will falter in the year or two ahead.’
When household incomes are under pressure many turn to the used car market when they need a vehicle and this often keeps prices relatively firm.
Walker added: ‘Demand levels have been encouraging – up seven per cent year to date and 15 per cent in September – and better than expected given the economic climate.
‘Specifically, older, cheaper cars have seen the strongest levels of demand, and we expect this to continue if household incomes remain under pressure.’
Rupert Pontin, director of data specialists One Auto API, thinks used values will fall next year.
‘Used car prices in 2024 are likely to see a return to pre-pandemic depreciation with gentle monthly downward movements,’ he said.
He’s not as bullish as others and thinks the cost of living crisis – especially interest rate rises – will hit consumers’ wallets hard and consequently their desire to change their car.
Pontin, who appeared recently on the Car Dealer Podcast (below), added: ‘The impact of the cost of living crisis is yet to be fully understood with the mortgage time bomb about to hit consumers. Average used car pricing in 2024 will drop in the region of 2.5 per cent a month during 2024 in my opinion.’
What’s next for used EV prices?
While our panel had mixed predictions for used car prices in general, when it came to the value of EVs they were broadly in agreement: They’ll continue to fall.
The used electric car market has seen huge drops in the last nine months with some cars falling by as much as 50 per cent in just nine months.
With few incentives to buy a used electric car, worries about public charging and increases in home energy prices have resulted in fewer buyers being tempted to make the swap to a used EV.
The AA’s Oakley said as more used EVs hit the market the price falls could accelerate further.
He said: ‘Our data shows that prices of used EVs and hybrids have been falling faster than the market as a whole this year. Looking ahead, this trend is likely to continue as the surge in new EV and hybrid sales seen over the past 18 months translates into increased supply of used models.’
Auto Trader’s Walker thinks used EV prices are close to bottoming out – but he’s also concerned about the arrival of more EVs hitting the market.
‘The electric market is still fragile, and it’s likely prices will continue to be volatile in the years to come as the market matures,’ he explained.
‘We expect values (for EVs) to improve in the year ahead after they bottomed out in 2023, but it’s possible an influx in supply could undermine this.’
Electric cars aside, the used car market has proven itself to be pretty resilient to economic pressures – and that’s largely due to the fact most buyers are changing cars out of necessity, not choice.
eBay Motors Group’s Jones added: ‘The used car market is primarily driven by people who need to change their cars. As such it is less volatile than the new car market for overall volume changes.
‘That said, we see a likely change in the composition of used car demand. We believe consumers will continue to be pushed to older, cheaper cars.
‘This is due to the ongoing impact of the cost of living crisis, higher interest rates and higher prices for younger cars, because of the lack of supply. Used car buyers are also more likely to sacrifice age and mileage than body shape.
‘We think dealers will need to remain highly tactical and responsive to the latest trends to ensure they have the right stock profile for their customer base.’
Nominations for the Used Car Awards 2023 close this week. Nominate your dealership and your team for one of our many awards and join us to celebrate your success on Monday, November 27, for awards night. Get your name in the ring quickly and easily online with our free to enter form.
