6:23 am, January 7, 2023
It is New Year’s Eve as I sit and write this. The children have been palmed off to grandparents to attempt building impossibly detailed Airfix kits and Lego Technic machines.
The rain is teeming down, and as my wife and I try not to eat yet more Cadbury Heroes, there is a sense of normality that we haven’t seen since before the pandemic.
I’m not sure how to describe the used car market for the last quarter of 2022. ‘Normal’ but not ‘new normal’. ‘Old normal’?
Many car dealers reported stronger-than-expected used car sales in November, which in ‘old normal’ times used to be a real slog.
But the early part of December really felt like how it was in 2018; the market slowed drastically.
No surprise, I suppose, given that every year the festive ‘season’ gets extended by desperate retailers who seem to replace Easter eggs with advent calendars – and then vice versa.
Used car buying seasonality was affected in the past couple of years by lockdowns, partial lockdowns, limits on numbers of people mixing within households – trading felt reasonably consistent within periods that would have traditionally felt quieter.
It also seemed used cars benefited from a rampant desire to spend money typically reserved for holidays, weddings or other Covid-affected items that flattened demand curves.
The true test of this return to ‘old normal’ will be what happens in January.
In pre-pandemic times, the sluggish November and December markets were vanquished by buoyant consumer appetite in January.
It’s too early to know if that’ll happen in 2023 but it’s highly likely. The one thing that is certain about 2023 is that supply levels will certainly not return to ‘old normal’.
Older used cars, especially lower-mileage cars and those with high specification, continue to maintain eye-watering residual values and that can only continue for the time being.
There is one exception worth noting, though.
We have seen many small used car price bubbles over the past couple of years, fed particularly by the actions of the online car buying services.
Running used cars through WeBuyAnyCar is as effective a used car market health check as there is and the speed at which prices change is very enlightening.
The segment that has seen the complete destruction of a very large price bubble is the used EV market.
Prices and demand for EVs increased dramatically following the Russian invasion of Ukraine; concerns over availability and prices of fossil fuels meant many buyers moved from combustion engines to EVs, and given the lack of new car supply, the limited used car market was on fire.
What we saw during the second half of 2022 was a settling of fuel prices, the focus by manufacturers on the supply of EVs and the cost of electricity rising to such an extent that it can be as pricey to charge a large-capacity battery on an EV as it is to fill the fuel tank of a large combustion engine car.
This means many dealers have caught, or will be catching, the most terrifying colds on used EVs.
I know of one dealer group that stands to lose £60k on just six Teslas that had only been in stock for three months.
There is little evidence there’ll be a return to heady values on used EVs as this is the only market that will benefit from more supply.
So, what awaits us in 2023? A Heroes tub of just Dairy Milk or mostly Chocolate Eclairs?
Car Dealer Live – the future of the car dealer – exclusive conference features talks from leading car dealers, Google and Auto Trader among much more. Find out the full event details and book tickets.
