Fleet News

‘Perfect storm’ to keep used car prices high

queue of cars in auction lane

Double digit increases, reported in used car prices in recent months, are likely to continue and could go even higher, says the Vehicle Remarketing Association (VRA).  

The consensus among vehicle pricing and industry experts at a recent VRA webinar was that the used car market is facing conditions not seen before.

VRA chair Philip Nothard explained: “We are in a kind of ‘perfect storm’ where stock is in very short supply, demand is high, and buyers are ready to spend freely.

“This is having all kinds of effects across the market. It is not simply that prices are rising but that stock turnaround is very fast and there are also signs that dealers are finding that they can increase margins.”

FUTURE RESIDUAL VALUES

Furthermore, Nothard says there is a general view that dealers could be even “braver” when it comes to higher pricing. “This is something that we expect to see happening into Q3,” he said.

The situation is also changing the kind of stock dealers would normally retail. “This trend is taking forms that you would probably expect, such as franchise dealers switching even more of their activity into used sales,” he continued.

“However, many dealers are having so much trouble getting hold of stock that they are retailing almost everything they take in part exchange. Those who specialise in 2-6-year-old stock, for example, might be happy to now sell a 10-year-old car.”

Nothard says that at some point, there will be a levelling off of values as supply increases and demand normalises, although he does not believe that to be to be “imminent”.

He explained: “The question is whether we will see a noticeable readjustment in values or something more subtle at that point.

“The danger is, of course, that dealers could be left holding stock that is falling rapidly in value but, so far, there is simply no sign of that occurring.”

According to latest used car data from Indicata, year-on-year the UK experienced another month of super rates of used car growth in May (+224.2% YoY) as its late lockdown during the first pandemic meant used car sales were down dramatically in March, April, and May 2020.

With the semiconductor shortage restricting new car supply and in turn the volume of used cars coming to market, it is also predicting that prices look set to remain very high for the remainder of 2021.

“In May, we witnessed one of the biggest price rises in a single month that we have ever seen, and the market looks set to continue at this level," said Jon Mitchell, group sales director at Indicata. 

"This has not impacted sales growth and the result is a shortage of used stock across the industry. This will continue throughout 2021 fuelled by the fall in manufacturer new car production.”

Some wholesalers are selling cars at well in excess of 110% of monthly cap values and some manufacturers selling their cars close to 120%, according to Cap HPI data, with many increasing prices on a daily basis. 

This, says Cap HPI, helped to make auction cars look attractively priced, even though with increased competition they were also selling for way ahead of monthly cap figures.

Every sector has seen values increase in May, according to Cap HPI. Some volume examples are Ford Fiesta up 8.5%, (over £1,000 at the 1-year age point), Audi A3 up over 7% (£1,300 at 1-year old, £800 at 3-years), Vauxhall Zafira up 10.4% (c.£750 at 3-years), Mazda 6 up 8.1% (c.£700 at 3-years), BMW X3 up 6.2% at 3-years old (c.1,500) and Volkswagen Tiguan Petrol up 10% or £2,400 at the 1-year point. 

USED HYBRID CARS

Indicata data also shows that hybrid cars are performing well, with used sales up by 8% in May compared with April – the same rate as petrol cars and just behind diesel cars which increased by 10%.

Mitchell said: “We have seen hybrids hold their own in the market since the beginning of the year and this is a sign that consumers are content with putting them on a used car shortlist alongside petrol and diesel.

“That can be put down to increased education by the industry and acceptability from drivers. EVs will need to tread this same path over the coming years.”

For more on the used van market, read the June edition of Fleet News, published later this week.  

Click here for remarketing best practice and procurement insight

Leave a comment for your chance to win £20 of John Lewis vouchers.

Every issue of Fleet News the editor picks his favourite comment from the past two weeks – get involved for your chance to appear in print and win!

Login to comment

Comments

No comments have been made yet.

Related content

Compare costs of your company cars

Looking to acquire new vehicles? Check how much they'll cost to run with our Car Running Cost calculator.

What is your BIK car tax liability?

The Fleet News car tax calculator lets you work out tax costs for both employer and employee