Used car prices are expected to rise in the next few months due to high demand and short supply.
That’s the prediction from Auto Trader director Ian Plummer. Speaking on Car Dealer Live this week, Plummer said dealers should expect already strong prices to accelerate in May and into the summer – but it’s something dealers ‘shouldn’t be afraid of’.
‘I think we can expect it to continue and probably accelerate,’ he said in the video, which you can watch at the top of this story. ‘I think there’s a slight reluctance in the market right now.
‘Some retailers are worried that the prices they’re seeing are too high. I believe they’re likely to grow further in the weeks and months ahead simply because the demand levels we’re seeing.’
The prediction is partly off the back of huge levels of demand Auto Trader is seeing on its platform.
For the week commencing April 19, seven days after showrooms were allowed to reopen in England, Auto Trader saw cross-platform visits increase by 40 per cent compared with the same period in 2019.
Meanwhile, the average price of a used car on Auto Trader increased by 5.8 per cent year-on-year. The previous week saw prices accelerate by 5.7 per cent.
‘That’s a huge level of growth of demand,’ Plummer said. ‘Even if it drops back a little bit, we’re probably likely to see demand levels that are higher than previous years. And we’re probably likely to see sales levels just like summer and autumn last year where we had positive single digit – sometimes high single digit, low single digit numbers compared to prior year.’
Plummer pointed to another influencing factor that is likely to accelerate used car prices and demand – microchip shortages in the new car market.
‘Some brands that are talking about 18 months of lack of visibility – not necessarily big disruption, but problems, so that’s going to dampen supply,’ he said.
‘If you slow down the new car proposition, fewer part-exchanges will coming in and that slows supply of used cars into the market.
‘Maybe fewer cars will go into the fleet channels, which won’t be prioritised over retail, and again this slows the supply.
‘But equally, if you don’t have enough new cars available as a franchise dealer, a customer who walks in and who’s wanting to buy a new car, there’s a very high probability they will drive out with a nearly new used car instead. Again this will boost demand and take out some supply.
‘Put all of those factors together and I would expect to see a strong level of price increases in the months ahead – and I don’t think we should be afraid of that. That’s exactly what we saw last summer.
I would expect like last summer and autumn retailers will be able to have a good period of growth during the months ahead
‘Those are the months where retailers paid the money for the cars, but they also not just paid increased prices, they saw increased margins too. So I think we need to be courageous in our buying decisions just now.’
Plummer added there’s a great opportunity for dealers in the months ahead.
‘Even if demand dampens I think we should expect to see some good single digit levels of growth on prior year’s. If that is also accompanied by strong retained margins, then I would expect like last summer and autumn retailers will be able to have a good period of growth during the months ahead.
‘If dealers are able to engage with digital retailing, and find some of those efficiency gains as well – on the back of the learnings they’ve taken from last year – I think they can see some cost savings.
‘When you look back at May last year when we exited the first lockdown, some people talked about pent-up demand and a one month blip. That clearly wasn’t the case.
‘We saw levels of demand on Auto Trader all the way to the end of the year; 25 per growth retailers translated into sales over a long period of time and over many months.
‘I’m quite optimistic that we should see something similar in the months ahead, given the kind of metrics we’ve seen today.’
Also in the interview, Plummer discussed:
- Why current strong demand is no surprise
- Will demand for electric cars catch up with supply?
- Will the motor trade return to a pre-pandemic normal?
Watch the full interview by clicking the video at the top of this story.