Used car values surge but uncertainty over stock
The used car market is seeing a surge in values, which have recorded their highest increase in 12 years as a result of rocketing buyer demand.
Latest live valuations data from Cap HPI shows figures are higher than in any month since March 2009, including last summer’s almost unprecedented buoyant market.
The data reveals an overall increase of 2% at the three-year point during April, equivalent to c.£275 per vehicle, at a time of year when traditionally values tend to drop.
Head of valuations Derren Martin said that consumer demand “went through the roof” when dealerships reopened.
“There were reports of consumers queuing at the door before some opened and once they were open, there were large queues outside as showrooms had social distance restrictions in place. Car supermarkets, in particular, experienced hugely increased business levels as the opportunities for consumers to turn up without an appointment and browse around a forecourt were seized upon.”
Cap added that this seems to be more than normal ‘pent-up’ demand and ‘accidental savers’ who have funds from less socialising, leisure activities and holidays over the last 13 months are now looking to make a purchase.
This is both on a ‘needs’ and ‘wants’ basis; aspirational purchases of premium-brand cars or of convertibles and sports cars – which may have been under consideration previously – are now high on the agenda and have been for some months.
Moving forward, Martin predicts the used car market to remain strong: “We are expecting demand to continue to be high, whilst supply issues in the new car market, not least because of semiconductor shortages, mean there will be consumers turning to used cars and a lack of part exchanges in the market, demand could well outstrip supply.”
And it predicts May will witness wholesale prices continuing to increase as dealers seek to satisfy this consumer demand.
However, Cox Automotive is urging caution amid enthusiastic forecasts for the used car market, warning that stock uncertainty is set to continue for the short term.
It says that the ongoing shortage of semiconductors, which has left manufacturers severely struggling with supply of new cars and having to pause operations, has led to delays with defleet programmes by leasing companies. This has been compounded by the fact that the pandemic has seen fleets hold on to their vehicles for longer than expected due to economic and business uncertainty, again hitting used car supply.
Philip Nothard, Cox Automotive’s insight & strategy director, explained: “Our latest dealer sentiment survey revealed that 54% of dealers were confident that used car transactions would increase in 2021 compared to 2020.
“However, the news that manufacturers are struggling with the supply of new cars will be felt at dealers when it comes to obtaining stock. This means that the lease and contract hire sector can’t get new product and therefore can’t defleet many of those low-mileage, nearly new cars that were hoped to enter the used car market in significant volume in the coming months.
“We had hoped that a regular and well-sized supply of defleeted vehicles would prove key to restoring a thriving, competitive used market. However, our latest warning does reflect the expectations of dealers, with 82% expecting supply to remain the same or decrease, and 33% predicting that wholesale prices would go up.”
Its latest research says the most likely new car forecast for Q2 2021 is 520,835 registrations, representing a 5.9% drop compared to 2000 to 2019 pre-pandemic average.
And it adds that in the best-case scenario, it’s possible that the used market will in fact stay broadly in line with pre-pandemic levels of activity, in which case the UK market will end the year with 7.27 million car transactions.
Cox also says there are still uncertainties in areas such as the UK economy’s overall economic recovery scenario and that work lies ahead to secure a successful recovery in the used car market; it says dealers should be “aiming to sweat as much RoI as possible from every asset”.