Used car supply will improve during 2023 but ongoing market pressures will hamper the market from reaching its true potential.  

Rising stock levels will help improve used car market fortunes, but economic pressures and increasing new vehicle supplies will take their toll

Cox Automotive has published its forecasts for the year, indicating a 3.2% increase on the actual numbers for 2022 as the most likely scenario, delivering some 7,096,932 used car transactions for the full year.

But it warns that the market remains precarious; while replenished stock levels and renewed utilisation from fleet and leasing firms will contribute to improved fortunes, pressures on consumer spending, increasing new vehicle supplies and weakening margins caused by product overage are all impacting the sector.

The market is still not back on track from Covid either; more than 46 million vehicles have been lost over the past three years due to production and supply issues and Cox warns the effects of this will be long-lasting.

Philip Nothard, insight and strategy director at Cox Automotive, said: “We must remember that the used vehicle market is still in a peculiar time. Although there are signs of weakness with cautionary buying, increasing overage and weakening consumer demand and confidence, this is all against the heights used vehicle values achieved over the past few unprecedented years.

“We are entering a period where supply will improve, but consumer demand is expected to decline further, exacerbated by the cost-of-living crisis. As such, retailers will once again need to be creative. For example, tactical registrations and discounting could become popular strategies as margins weaken and product overage increases.”

The EV market could also be hard-hit this year; while OEMs are shifting strategies to improve EV supply, many drivers still consider ownership costs prohibitive, prompting increasing caution and risk for EV residual values. Recent weeks and months have seen above-market depreciation movements on those models and derivatives either in significant oversupply compared to market demand or not on a buyer shopping list.

Nothard explained: “As some leasing companies review strategies for their electric vehicle fleets, others may choose to delay that transition due to uncertainty. But, as we have observed over the decades with combustion engines, given time, the supply, demand and residual value uncertainties will settle and find their place in the market.”

The Vehicle Remarketing Association, where Philip Nothard currently holds office as chair, has also expressed concerns for the used EV market. It’s called for sector support in next month’s Spring Budget to pave the way for large volumes of vehicles in the future.

For more details of Cox Automotive’s forecasts for the used car sector, read its latest AutoFocus digital magazine here.