11:26 am, October 27, 2022
With consumers facing rising bills and economic uncertainty, expectations of a used car price crash intensify.
But what do the experts think will happen to the values of second hand cars that soared by 30 per cent in 2021 and remain high to this day?
A triple whammy of rampant inflation, energy price rises and soaring interest rates is certainly likely to dampen consumer confidence.
However, car dealers and industry experts have told Car Dealer that might not precipitate a crash in used car prices.
With new car supply still poor, there are few used cars available and this reduced supply is being pretty evenly matched with a fall in demand.
‘There’s a disconnect between what consumers think is happening and what is really happening behind the scenes in car dealerships,’ said Neil McCue, director of Snows Motor Group, which represents 20 manufacturers.
‘They read all the bad headlines and think that means prices of used cars must be falling but they actually went up in September.
‘Used car prices won’t come down by any significant margin until new car supply gets better – and that’s a long way off.
‘With no new cars, there’s no used cars which means those that are still around are going for a premium.’
Chris Wiseman, managing director of Wessex Garages that holds Kia, Mazda, Nissan and Hyundai franchises, agrees with McCue.
‘Consumer confidence remains the biggest driver in terms of used car performance, but this is balanced by the lack of stock in the market,’ he told Car Dealer.
‘I believe the majority of consumers are in a holding pattern, waiting on government actions and what available spend they have.
‘This could cause an element of downsizing to reduce payments, which in reality will strengthen a section of the market.’
Wiseman added that many new cars are also going up in price, which in turn could also keep used car prices high.
Alex Jones, from used car supermarket Carbase, also pointed to a shortage of second hand models in the market that’s keeping prices buoyant.
He told Car Dealer: ‘There are around 2m nearly new vehicles missing and these will not reappear into the UK market.
‘With supply so severely disrupted I believe this will prevent any one-off major price correction.’
Used car headache
Talk to the used car pricing experts and it’s clear all this uncertainty is giving them a bit of a headache.
Used car valuation firm CAP HPI tracks secondhand car prices carefully and it says it’s not easy to predict what will happen in the next few months.
‘Supply levels remain around 20 per cent below where they were in pre-Covid times and this has been holding values up for some time,’ said Jeremy Yea, senior valuations editor.
He explained that used car values usually drop at this time of year as consumer attention turns towards Christmas and other financial priorities.
However, he admitted the firm is watching the figures more closely than ever as it looks for evidence of a more profound slump in used car buying.
‘Falling used car footfall is being described as “seasonal” but there is also a fear that this is the start of a real decline in consumer spending, based on the fast rise in the cost-of-living,’ added Yea.
‘It is important to remember that values historically reduce in the last quarter of the year, as the focus turns to Christmas spending, but what is unclear is to what extent they will reduce this year.
‘It is not uncommon for values to drop by 2-3 per cent in November and between 1-2 per cent in December, but volumes are lower this year. Value drops are highly likely, but could well be less than those seasonal norms.’
Earlier this week, eBay Motors Group reported on its research which found an increasing number of used car buyers were delaying purchasing decisions.
A survey of 2,000 used car buyers found 28 per cent said recent rises in the cost of living means they’ll be purchasing a cheaper car, and 16 per cent a smaller one.
However, a quarter of respondents said the increases will have no impact on their next purchase.
Rival used car marketplace Auto Trader believes used car demand – and subsequently used car prices – will remain strong.
Richard Walker, data and insights director for the firm, also pointed to the fact there has been a severe shortage of new car sales in the last three years which has reduced supply of used models.
‘For the vast majority of motorists, cars are a fundamental need and not a discretionary luxury,’ he told Car Dealer.
‘There’s no sign of the proverbial cliff edge for used car prices.’
Auto Trader said rather than falling, its data shows that the average price of a used car is actually up 11 per cent on a year ago.
Used car shortage
Fellow used car advertising marketplace CarGurus said it saw also prices rise 1.7 per cent in September with the average cost of a used car on its site now £18.4k. However, its data points to used car prices down slightly from their peak at the start of the year.
CarGurus expert Kevin Roberts said: ‘Consumer concerns about the economy, inflation and rising interest rates are going to have an impact on vehicle prices – although the path might not be as direct as one would think.
‘While flagging consumer demand should have a deflationary impact on vehicle prices the continued supply shortage means that not only will we see fewer new vehicles available now, but a continued impact in years to come with used vehicles.
‘So, while prices continue to come down, this shortage of vehicles means that prices will likely remain above pre-Covid levels for the foreseeable future.’
Used car sales site Motorway – which connects consumers looking to sell their cars with competing dealers – said its network of buyers were ‘still busy’.
Sales director James Bush told Car Dealer: ‘As we would expect with end of year seasonality, used car prices may reduce slightly, but for as long as there continues to be constraints on new car supply, we should be in a healthy position for used car sales and their values.
‘We have seen prices this year remain robust in the face of widespread economic turmoil ranging from oil prices to gas and electric rates and now sharp increases to mortgage rates.
‘Prices rose 30 per cent in 2021 and so far this year they have only reduced marginally.
‘While new car supplies are starved of mass production the used car market and prices for those cars should not see any sharp falls in prices.’
Philip Nothard, insight & strategy director for used car conglomerate Cox Automotive said even with a dip in consumer confidence he couldn’t see it having a major downward impact on prices.
However, he said used car prices have plateaued and the dramatic rises of last year are likely to be a thing of the past.
Consumer champion Jim Holder, editorial director behind brands What Car? and Autocar, said that bargain-hungry consumers could turn to the used car market as they look to tighten spending. This increase in demand for used models could be a saving grace.
‘This will be all about demand,’ he said. ‘Our data is already showing that around four-fifths of would-be car buyers are lowering their budgets or delaying their next car purchase, but the crucial part of that equation will be whether that impacts more on the new or used car market and how long people are prepared to hold out.
‘The potential is there for used cars to be seen as a budget alternative to a new car, helping prop prices up.’
So if you ask the experts, the consensus is there’s no big fall in used car prices coming any time soon.
In his most recent video update with Car Dealer Magazine, which you can watch at the top of this post, CAP HPI director of valuations Derren Martin said used car values dropped slightly by 0.5 per cent in October.
But he said they will not be plummeting due to economic pressures.
‘We really don’t think the cost of living will affect prices dramatically,’ he said.
‘Prices are already high because of what has happened previously, and in times of recession and tough times, people still go out and buy used cars.
‘Prices will come down, but certainly not crash.’
Car Dealer Magazine published a special video investigation into why used car prices rose following the pandemic. You can watch that video below.
