As used car prices continue to rise, we look at the reasons for the rise and ask the experts when prices might fall again
Used car prices in the UK continue to rise and threaten to throw some motorists off the road.
Data shows that the average increase across all makes and models since May 2021 is more than 28%, taking the average used car price to £17,385.
In some cases, however, the year-on-year increase was even more dramatic, with the Suzuki SX-4 gaining 80% compared to 12 months ago.
The prices of family-friendly models like the Seat Alhambra, Ford S-Max, Renault Scenic and Ford Galaxy have also risen by 50% to 60% over the past 12 months, putting additional pressure on motorists who are already facing record-breaking increases in fuel prices and insurance bills.
And whether you’re looking at almost new cars or older models at the cheaper end of the market, sellers are asking more than ever.
Why are used car prices so high?
A perfect storm of events over the past two years has pushed prices well beyond what would normally be expected, with much of the cause attributing to problems in the new car market.
James Fairclough, CEO of used car specialist AA Cars, says demand, which built up while dealers were forced to close during the first lockdown, caused the market to surge from mid-2020.
As dealerships gradually reopened, customers flooded back and demand for new and used cars skyrocketed as factories struggled to regain full production capacity.
That call was reinforced as thousands of people opted to drive rather than return to public transport amid ongoing fears of Covid infection.
At the same time, automobile manufacturers have been affected by the global shortage of electrical semiconductors, which are vital to many operational functions in modern vehicles. This has resulted in manufacturers struggling to produce new cars, with some firms cutting production shifts at factories or removing options from vehicles to meet the shortage. Ford recently announced it was pausing orders for its best-selling Fiesta due to component issues.
Mr. Fairclough explains: “With the number of cars rolling off production lines flat or declining, anyone who wanted to buy a new car often had to wait a long time; and as a result, much of that demand shifted to the used market instead.”
Mr Fairclough told National World: “Our data shows that some of the most sought-after models appreciate it even when they’re sitting in driveways. For example, a five-year-old Mini Hatch cost 15% more in 2021 than a three-year-old in 2019.
“For the most popular car of all, the Ford Fiesta, the average price of three to five year olds increased by almost a third (31%) to £9,770 between 2019 and 2021.”
Figures from Auto Trader show that one in five near-new models, including the Land Rover Defender, Dacia Sandero and Volvo XC40, are selling for even more than the original list price as customers struggle to find the car they want.
When will used car prices go down?
Auto Trader data shows that price increases have moderated in recent months – May’s 28.4% yoy change is down from April’s record 32.2%. However, the experts agree that an immediate end to the currently artificially inflated prices is not in sight.
Richard Walker, Auto Trader’s Director of Data and Insights, said: “It’s important not to jump to conclusions about the health of the market despite the slowdown in May. If we compare it to a boom in car buying after the end of the third lockdown, it is not surprising that the market could appear weaker. But as measured by Auto Trader site visits, demand is still solid and should support pricing for some time to come.
“This is a market that will only gradually return to normal.”
The factors that drove the recent price increase continue to affect the market, and the impact of other global events, including the war in Ukraine, may also keep used prices artificially high.
Many automakers are still warning of long waiting lists for new cars, and Volkswagen’s chief financial officer Arno Antlitz has acknowledged that chip shortages could hit the industry by 2024. That means buyers either have to wait a long time for a brand new car or have to opt for an almost new model instead.
A secondary effect of the chip shortage affects the supply of used cars. As fewer new models are sold, fewer cars are traded in and enter the used car market.
James Fairclough explains: “The used car market typically receives a steady influx of almost new cars that have been run on finance and then returned.
“But with fewer new cars being bought or financed during the pandemic, the supply of one- to two-year-old cars coming onto the market now could be reduced, and this is likely to push up prices in the almost new segment of the market.”
The war in Ukraine could also have an indirect impact on the used car market, again due to its impact on new car production, where a drop in the supply of parts, including steel and wiring harnesses, may create further problems for factories.
Mr Walker believes such supply problems will continue for many months to come. He says: “Forecasting in the current geopolitical climate is even more difficult than usual, but we expect supply issues to persist through the end of the year which, combined with currently healthy consumer appetite, will keep used car prices high for some time to come.” “
According to Mr. Fairclough, the growing cost-of-living crisis could also play a role in keeping used prices high.
He notes: “With inflation eating away at people’s disposable income, many drivers will now consider buying a cheaper used car because they can’t afford it or because they want a car that will last a few years, while they wait for the economy to improve. The high demand for these cheaper models could drive up prices.”
That’s not to say it’s bad news across the board, not all models are in such high demand, and Auto Trader figures show that some, including models from Mini, Land Rover and BMW, have seen small write-downs. The latest data also shows that prices for cars older than five years fell in May for the first time in two years as demand for alternatives to public transport falls after the lockdown.
Mr Fairclough adds: “Many cars have not experienced the same demand pressures and those with ample supply have seen much more modest price increases.
“Anyone in the used car market should do their research beforehand and consider comparing prices outside of their area too – as there can be huge price differences in the UK depending on the availability of certain models.”
https://www.nationalworld.com/lifestyle/cars/used-car-prices-uk-2022-why-are-they-increasing-when-will-they-drop-3660837 Why are used car prices rising and when are they falling?