The rate at which used car prices are dropping has taken the market by surprise, admits a motoring industry expert.
Phil Nothard, insight director at Cox Automotive – the owners of Manheim Auctions – told the Car Dealer Podcast that significant price falls in the used car market have caused ‘waves across the sector’.
He explained that the market had ‘slowed significantly’ in the last couple of months at the same time as used car supply has increased.
Used car prices have fallen 13.7% since April, according to figures from trade pride experts Cap HPI, and they are on track to fall a further 4% at least in November.
Nothard said there are still areas of the market that are showing signs of ‘strength’ – especially sub £6k used cars – but it has become more challenging for cars priced above that.
Speaking on this week’s episode, which is available on all platforms now, Nothard said: ‘There’s nervousness about how far those [used car] prices will continue to come down.’
Nothard said he was aware of some dealers currently on ‘buying bans’ which is halting them from replenishing stock after selling cars.
He believes the market will continue to be challenging for the rest of the year, but that used car dealers will soon need to start stocking up again ready for the important first quarter.
‘We are going through this change point,’ he explained.
‘But I think we’ve got to be careful how we reflect what is going on.
‘Now, the prices do need to come down. Some of these prices are still significantly higher than they were pre pandemic.
‘But Cap HPI is quoting 4.2% fall at the three year benchmark for October and you know that will create waves across the sector which then creates nervousness. It’ll create caution.
‘There’ll be dealers that will be on buying bans or restricted buying and that will be creating a problem.’
Nothard explained that Cox Automotive is still predicting a ‘slight uplift’ for used cars next year, but cautioned that 2024 will be a ‘key point of change’ for the sector.
Next year will be three years on from the pandemic when considerably less new cars were sold due to lock downs. Those fewer cars sold then will start to have a major knock on impact on supply in 2024, he explained.
Cap HPI told Car Dealer last month that it was predicting this fall in supply to be matched by reduced demand which it thinks will soften the fall in the new year. You can watch the latest used car market pricing update for October in the video above
‘I think it’s going to be painful,’ added Nothard.
‘I think it’ll be painful until at least the end of this month and then we’ll have to see what happens going into December.’
Nothard went on to explain that many used car dealers have cars in stock at ‘pre drop’ prices still and are having to sell these on before restocking at the new lower price levels.
He said that there are areas of the market where there are ‘opportunities’ for car dealers and said the industry needs to ‘remain calm’.
‘What you don’t want is this continual panic because that will continually drive down the market and then the risk is you end up chasing the market back up again,’ Nothard added.
‘It doesn’t take many of the large groups to come back into the market to start and build that activity again.
‘So we’ve got to keep an eye on it day by day and week by week as we get towards the end of the year because they could very quickly start to stock up for Q1 as it is key for retailers.’
Cox Automotive said today that Q4 is ‘downbeat’ but it anticipated that even with weak demand and increased supply, 2023 used car transactions will still hit 7.15m. It said this represents a 4% year-on-year increase, but 3% below the 2010-2019 averages.
In a separate statement, issued alongside those figures, Nothard added: ‘Current trade values remain unrealistically high despite the recent trade drops.
‘A remarkable four-year period with minimal depreciation has contributed to this trend, with oversupply and the return of discounts, deals and incentives in the new car market creating an unsustainable cost discrepancy.
‘Quite simply, used cars have become comparably unaffordable – at the same time, demand has eased, and the market is adjusting accordingly.
‘While this dramatic depreciation will bring about some short-term pain for some, we must remember that over the long-term the sector has enjoyed a period of healthy returns, and we’re now returning to where we ought to be.’
The weekly Car Dealer Podcast is available on all good podcast platforms and is released every Friday afternoon for your drive home. It reviews the week’s Car Dealer headlines with a special guest.