Used car prices could fall by as much as seven per cent over the next year as consumers tighten their belts and the market enters a volatile period.
In an exclusive Car Dealer Live interview yesterday (which you can watch in full above), experts from used car trade valuation experts CAP HPI said that prices of older models have fallen around five per cent during lockdown – but they still haven’t adjusted prices of newer used cars.
Those adjustments could come within the next month as car dealers reopen on Monday and auction houses get back up to full speed from June 15.
Volumes of trade and retail used car sales are still low, which makes adjusting prices hard at the moment, but head of valuations Derren Martin and head of forecasts Andrew Mee warned of an unsettled picture for prices to come.
The pair explained CAP HPI stopped moving prices on March 24 – the first full day of the lockdown – and resumed on May 11 for vehicles over five year old.
It’s now reviewed some 1,700 models and moved the prices of about half of them, with the average movement being around two per cent down.
Some have moved down by as much as five per cent.
Mee said: ‘The next 12 months could be quite difficult. Values by next summer could be around seven per cent lower than they otherwise would have been.
‘This is where we see a bit of pressure on values, because although I think there will still be good demand from a number of people, a lot of people will be concerned about the economy, about job insecurity and spending money on a big-ticket item like buying a new or used car.
‘So we think over the next 12 months the balance between supply and demand is going to switch towards there being oversupply.’
Mee said it could be three years before used car prices start to level out and the rise and falls get back to ‘normal’.
He added: ‘By three years’ time, values will be back to where they otherwise would have been.’
There was some positive news, though.
The economy and consumer confidence should improve and the initial shortfall in new car registrations – which CAP HPI thinks will last into at least the early part of 2021 thus reducing used car supply – won’t last.
Mee added: ‘We think that longer-term future is quite rosy, which is good news for PCP business for example.’
The price drops seen during lockdown for the older cars is not wholly unusual for this time of year either, explained the CAP HPI experts.
Mee added: ‘If that looks a bit alarming, it’s only what we would normally have expected to happen at this time of year.
‘The first few weeks and months or so [of the restart] is going to be very volatile, but we don’t think the movement will be worse than what would normally happen over that three-month period.’
The pair were unable to say when the company will resume moving prices of newer cars, but suggested June would be likely, with a phased programme starting with cars at three to five years.
With car dealers returning to work on Monday, Martin warned dealers need to be careful how they react.
He said: ‘We don’t want everybody piling their cars back into the market all at the same time.
‘We’ve never been in this situation before and forecasts are just that – they’re forecasts. It’s not necessarily what is going to happen, and the more that remarketers can spread their defleets over a period of time the less of an impact there will be.
‘Values will drop if there’s an oversupply. We would encourage anybody – finance houses, leasing companies, rental companies – to phase their defleets over a period of time.’
If they don’t, they’ll all be competing with each other, he said.
Martin added that they were aware of remarketers with a lot of stock, but added: ‘We’re saying hold your nerve a little bit on pricing and see what happens to the market when it comes back and phase those defleets.’
As for popular models dealers should stock up on, smaller and cheaper cars as well as larger but older ones would be the more in-demand vehicles in the next 12 months, said Mee, while Martin predicted that small EVs would do well too.
Overall, Mee was ‘definitely optimistic’ about the used car market in the medium to long term. The next 12 months could be difficult but after that it will be good news for the car market in general, he said.
Martin, meanwhile, said that overall the company felt the van market would do better than the car market, helped by shops needing LCVs as they resumed deliveries.
‘Hold your nerve and don’t race to the bottom,’ was Mee’s general advice to dealers.
Meanwhile, with anti-Covid safety a major concern for dealers as they look to encourage customers to come back and trade, dealing with part-exchanges safely would be crucial.
The pair explained Cap HPI will be soon launching a new appraisal app for consumers and dealers, which it had been working on pre-coronavirus, that allows dealers to do that remotely.
They explained that when a registration number is put into the app, it returns all the vehicle’s details. The customer then puts the mileage in, takes photographs of their car and uploads them directly to the dealer all from home, and the dealer can then produce a value.
Martin said that although there would still be people wanting to visit showrooms and do test drives, doing as much of the appraisals and valuations remotely as possible would help dealers out and be good for the market.
Calling the app ‘an exciting development’, he said it was currently being tested with a big dealer group, with the aim of rolling it out in the next few weeks.
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