Why are used cars so expensive? What has caused a new car shortage and when will prices fall?

The new and used car markets are still struggling from being shut down in early 2020 due to the Covid-19 pandemic. Now, two years on, the world of cars is still being plagued by component shortages, supply disruption and outside economic pressures. Here we explain more…

Time 7:30 am, August 18, 2022

The cost of buying a new or a used car has been thrown back into the spotlight recently.

While car dealers and industry experts have long known the reasons for high new and used car prices, mass media coverage of the phenomenon has made the situation headline news.

You’ll find countless stories on Car Dealer explaining exactly why and how car prices have gone up, including the latest predictions on if/when the car market will ever return to normal.

Here we summarise the main questions we hear from the car buying public.

Why did used car prices go up?

Just like most people did during lockdown, the used car industry put its feet up and held its breath. When the first lockdown ended, an immediate demand – branded as ‘pent-up demand’ – kicked off for used cars, driven by customers who wanted or needed to buy during lockdown but couldn’t. There was also a strong desire by many people not to travel on public transport. This two factors combined lead to high demand and in turn up went prices.

After two further lockdowns – where dealers had got used to selling cars online via click and collect – the used car market reached unprecedented levels of demand at the end of the third lockdown in April 2021. This is when the shortage of semiconductors started to affect the new car market.

Are all used cars going up in price?

The short answer is no. Used car prices went up on average by nearly 30 per cent in 2021, and while it’s true demand and high prices are starting to soften in summer 2022, it’s going to take a long time for prices to drop by nearly 30 per cent back to where they were. Used car prices change month on month, and not every type of car and price bracket has seen price rises recently, but there are still some strong sectors, namely £10,000-£15,000. The under-£10,000 sector was on fire until recently but these cars are starting to appear expensive. Cars over £50,000 have been strong since the start of the pandemic, generally speaking, and prices are still high now.

Are new cars going up in price?

Yes, they certainly have been. While new car registrations have slumped month after month due to supply chain pressures, the price people are paying for new cars has actually risen. According to data from the Office of National Statistics (ONS), new car prices jumped by 3.3 per cent in 2021-22, while in the next 12 months that figure is expected to rise to 3.1 per cent. The main reason for this is the shortage of new cars, but another major factor is the average cost of cars being sold – alternatively-fuelled cars are grabbing a larger slice of the new car market every month, and these cars tend to be more expensive than petrol- and diesel-powered cars.

When will new car deliveries get back to normal?

How long is a piece of string? When the semiconductor crisis kicked off in early 2021, it was thought the car industry would get back on track by Christmas. But that prediction was way out because, as of summer 2022, industry experts believe ‘normal’ levels of supply might return in mid-2023. While the supply of semiconductors is certainly improving, latest pressures to hit the new car production world have been new outbreaks of Covid-19 in Chinese and Far Eastern factories, and a disruption to the production of wiring looms because of the war between Russia and Ukraine – the latter could still cause problems for new cars for quite some time.

Are all new cars affected?

Generally speaking, no. Delays to having your new car delivered are very much dependent on which manufacturer you’re buying from and also which car you’ve ordered. Take Ford, for instance – the Blue Oval has diverted resources to its more profitable models such as the Transit and Puma crossover. It’s for that reason those models remain in the monthly best-selling new vehicles charts, while perennial favourites like the Fiesta and Focus have drifted away. Those two Ford stalwarts are less profitable for Ford so the company is in no rush to churn out those cars in any great number.

While some carmakers are quoting anything from six to 18 months for delivery of some cars, it’s not across the board. Some MG dealers can supply a new car within 12 weeks after a £99 deposit has been made.

Why are dealers charging so much for used cars?

It’s basic economics – high demand equals high prices. That doesn’t mean all dealers are blindly rising prices to make a quick buck, but the sometimes high prices they’re paying for stock have a knock-on effect to the sticker price the customer pays. For consumers, it does pay to shop around if they can as not all dealers are keeping their prices in line with fluctuating market dynamics – so don’t be fooled by the belief that all cars are expensive.

When are used car prices likely to come down?

So far in 2022, used car prices have started to come down gradually – most months since January have seen anything form 0.2 to 2.1 per cent falls each month. But before you dash out to buy that dream used car, you have to remember a couple of things.

Firstly, with used car prices having risen by nearly 30 per cent in 2021 it’s going to take a long time for those prices to fall back to where they were. And secondly, there simply aren’t enough used cars around to allow the market to crash. Auto Trader believes there were 1.5m fewer new cars have been sold since 2020, so that’s at least 1.5m used cars coming to the market.

And then there’s the effect of the cost-of-living crisis. One thing is for sure, the crazy world of new and used car prices isn’t over yet.

Read more used car stories here

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. In October 2021 he became Car Dealer's associate editor.

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