3:29 pm, April 15, 2020
Will I get a better a deal on a car because of the coronavirus? It’s a question many people are asking dealers, but no one really knows.
The experts we’ve spoken to so far – from the big dealer group bosses to the smaller independents – all think that used car prices will remain pretty much static. As there’s very little movement in the market at the moment, with no one really able to sell cars, the prices of used models are pretty much the same.
However, as dealers look to recover from the coronavirus crisis, there’s a chance that some – in a bid to get cash back in the bank account – will slash prices.
However, that will cause issues for everyone.
Dealers are already reporting that some customers are making cheeky ‘coronavirus’ bids on their stock. However, only the foolish would accept these.
But with many out there wondering what will happen when the lockdown lifts, here we take our best guess at what will happen to the used car market, and used car prices, on the other side.
Will there be deals when the lockdown lifts?
Maybe.
Though some dealers have been able to take orders over the phone during the lockdown and a very small amount have managed to deliver cars via online services, there will have been a massive deficit in the number of cars being sold.
As a result, dealers will be keen to shift vehicles once the lockdown has lifted. However, that doesn’t mean that there will be huge discounts around. Dealers are not going to sell cars to customers at a loss so cheeky offers of half price or 25 per cent off are likely to be laughed off.
However, dealers will want to start selling again so with a decent part exchange, an offer to take finance, or some sensible negotiation, deals will be found.
What about finance? Is there a deal to be had there too?
Despite what many punters think, dealers hate cash. It’s a pain to deal with and actually it’s far better for a dealer to take in a part exchange and sell the next car on finance
Interests rates are historically low at the moment, and given that these determine how much you pay for finance, then it’s a great time to take out a loan.
Negotiation on interest rates can be had, so it’s up to the dealer and buyer to find a middle ground they are happy with.
Will prices of used cars tumble?
Surprisingly for some, the price of used cars has maintained rather level during the crisis. In fact, the prices set by valuation companies to give a ‘base’ price for used cars has remained the same, meaning that used car prices have, as a result, stayed consistent too.
This is because nothing is moving – cars can’t really lose value or depreciate if no one is transacting and no average values are set. Our best guess would be used car values will remain much the same – they’re actually relatively easy to pause – however, if some dealers start slashing prices to start selling when the lockdown is lifted, it could bring the market tumbling down.
Most dealers are holding firm – which is good for the trade, and customers because used car values underpin a huge number of PCP deals.
How do used car values affect PCP deals?
If used car prices suddenly tumble the residual values set at the start of many PCP deals will no longer be valid. Many customers could find themselves with no equity in their PCP deal when they return to the dealership at the end of the term making it far harder to buy a new car.
PCPs are designed around the fact at the end the car has a value – its guaranteed future value – which is usually a little bit more than what the finance agreement end up at. For example, the car is worth £5,000 at the end but the finance has pegged the value at £4,000 and all payments have been made. That £1,000 of equity can then be used as a deposit for the next car.
However, if the used car values tumble and go the other way, the finance company loses out and the customer walks away – as they don’t have a deposit for their next car built into the PCP deal.
This happens when used car values take a huge hit – and that can affect the whole market.
What about part exchanges?
Customers wondering if they will still be able to part exchange their car will be pleased to hear dealers will be just as keen as ever to get their hands on good quality stock. These are where deals are built so dealers will be encouraging customers to bring in good part exchanges – especially if it means they can fill forecourts that they are struggling to find stock for elsewhere.
More: Can I still buy a new car during the lockdown?
More: Can I still buy a used car during the lockdown?
More: How long will car dealers be closed for?
More: What to do if your PCP is coming to an end during the lockdown
