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Used car market is strong for now, but ‘perfect storm’ could see values tumbling in August

Time 10 months ago

Trade volumes are almost back to normal for now, but used car prices could fall next month.

That’s the view of Cap HPI’s head of valuations, Derren Martin, who has warned that while prices are strong in the used market at the moment, August could see a ‘perfect storm’ of economic pressures, logistics issues and de-fleeting by vendors driving down prices down.

‘Trade volumes now seem to have settled at around 95 per cent of “normal”’, Martin told Car Dealer Magazine.

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‘Older cars strengthened in price in June. The average movement of five-year old cars was 1.2 per cent (or circa £70) up during June, while 10-year old cars increased by an unprecedented average of 5.7 per cent (circa £140), at a time of the year when values invariably drop. Again, these have stabilised in July.’

Martin revealed that while drop-top cars over three years old continue to be sought after thanks to ‘sunny weather’ and ‘a short-term increase in some people’s disposable income’, the same can’t be said for hybrids.

‘Petrol-hybrid cars have been under pressure – they generally cost more than their diesel or petrol equivalents,’ he said. ‘Petrol hybrid cars dropped by an average of 2.4 per cent or £350 at the three-year point, whereas petrol cars were almost level and diesel models increased by around £50. This theme has continued in July.’

Martin said the lack of new car activity has led to shortfall in the numbers of part-exchanges being generated, meaning there’s less ‘natural source of replenishment for the franchise dealers’. Logistics issues continue to be a problem, too.

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But, while used car prices are strong for the most part, next month could see a change despite used cars remaining popular with buyers.

‘We expect the market to continue to be stable for a few weeks still, but more job losses seem to be announced or mooted daily,’ said Martin.

‘From August, businesses have to contribute towards the furlough scheme, meaning financially there will then be a burden on them to maintain employment levels, although last week’s mini-budget announcements may help.

‘It would be fair to expect a continued economic downturn, which can lead to a hit to used car prices, even though they will remain popular. There is the potential for a perfect storm of volumes hitting the market as logistics issues ease, extensions end and the economy takes a downturn.

‘We expect this could start towards the end of the summer and potentially accelerate as we enter the final three-four months of the year. Responsible de-fleeting by vendors, so as not to cause a glut of cars as lease extensions come to an end, will help to hold up used car prices.’

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James Batchelor's avatar

James – or Batch as he’s known – started at Car Dealer in 2010, first as the work experience boy, eventually becoming editor in 2013. He worked for Auto Express as editor-at-large and was the face of Carbuyer’s YouTube reviews. In 2020, he went freelance and now writes for a number of national titles and contributes regularly to Car Dealer.

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