The used car market is showing signs of shrinking, but a price crash is not on the horizon.
That’s the latest from Cox Automotive which, in response to dwindling supplies of stock and declining consumer spending habits, has downgraded its used car forecasts.
It said the ‘halcyon’ days of rising values and high demand are showing signs of slowing down.
The firm has now revised its used car forecasts downwards, predicting Q2 2022 will end on 1.91m transactions – an 11.9 per cent decrease year-on-year, 0.7 per cent down on the 2001-2019 average, and 6.1 per cent down on pre-pandemic 2019’s performance.
Cox expects Q3 will see 1.95m transactions, which would represent falls of 4.2 per cent year-on-year and 6.1 per cent on 2019, although up 1.3 per cent on the 2001-2019 average.
Cox’s full-year expectations are at the 7.4m mark – a 1.6 per cent decrease year-on-year, and a 1.3 per cent downgrade on its previous forecast.
The company first saw the tide changing in Q1 with a fall in used car values, the easing of demand and the lowest figures from the consumer confidence index since 2008.
Cox anticipates values will continue to fall in Q2 and ‘possibly’ into Q3, and values of sub-one and one-to-two-year brackets will be the most affected immediately.
However, the company did caveat that prices are still significantly higher compared to the pre-pandemic market suggesting a price crash isn’t imminent.
It has never been more important for retailers to analyse their pricing position, review stock profiles, and regularly monitor the retail and wholesale markets
Dealers are now facing a supply-driven market, Cox said, and the company urged traders to ‘constantly monitor the details’.
Commenting on the expectations of a supply-driven used car market brought about by continual pressures on the new car sector, Philip Nothard, insight and strategy director at Cox Automotive, said: ‘The result could be a supply-driven used car market that sees prices maintain their current record levels or increase further.
‘But for the time being, the market is coping extremely well and has demonstrated resilience to these external pressures, with 7.5m used car transactions in 2021.
‘Although this may not have necessarily resulted from strong retail demand, it is positive compared to 2020.’
He added: ‘Used vehicle values are still at a significant high point compared to the pre-pandemic market, and the effects will be different across all makes, models, and ages.
‘For example, there is still high demand in the sub £5,000 and £10,000 sectors and higher-priced vehicles, while the mid-market is feeling the most pressure as mass-market buyers tighten their belts to compensate for the rising cost of living.
‘Consequently, it has never been more important for retailers to analyse their pricing position, review stock profiles, and regularly monitor the retail and wholesale markets.
‘But, as the old saying goes, the devil is in the detail.’