Residual values on cars will remain reasonably stable until at least 2024, given the current economic climate and limited new vehicle supply.

Cox Automotive says values will remain stable but are unsustainable in long term

That’s according to Cox Automotive, which has published its updated 2023 forecasts for the used vehicle sector and says the market should see a period of stability in 2023 until at least 2024.

While the forecasts represent downgrades from the previous forecasts, Cox says they show cause for optimism in the used car sector.

On the upside scenario, 2023 would end on 7.51 million used car transactions, up 9.2% year-on-year, 1.8% on the 2001-2019 average, but 5.4% down when compared with the most recent pre-pandemic 2019 performance. It’s also a 3.8% downgrade on the previous forecast.

The revised baseline scenario for 2023 sees the year end on 7.07 million used car transactions, up 2.8% year-on-year, but 4.1% down on the 2001-2019 average, and 10.9% down when compared with the most recent pre-pandemic 2019 performance. It’s a 5.8% downgrade from the previous forecast.

In the downside scenario, it predicts the year will end on 6.66 million used car transactions, down 3.1% year-on-year, 9.7% on the 2001-2019 average, and 16% down when compared with the most recent pre-pandemic 2019 performance. This is a 6.2% downgrade from the previous forecast.

Cox added that used car retailers will continue to face the low-supply, high-demand market dynamics that have hit the market for close to three years now.

The lack of new car supply is predominantly impacting the zero to 12-month and 12 to 24-month sectors, but with the same impact expected in the three-year-old sector too. The situation is undoubtedly an improvement on 2021 but is still some way off pre-pandemic levels, with increases in supply limited to specific models and derivatives.

Philip Nothard, insight and strategy director, commented: “The question remains – how much will consumer demand be weakened by the cost-of-living crisis, rising interest rates, and the willingness to purchase big-ticket items such as cars? Unfortunately, it’s impossible to predict the extent of this today.”

While used values will come under increased pressure, they will remain at their inflated levels for some time, in contrast to the dramatic changes of last year, which produced astronomical heights in the sub-12 month and one- to two-year market.

“There is extreme volatility as product becomes available and constraints return; used prices have plateaued as a percentage of the cost of new, but make no mistake, these values are still very high and unsustainable in the long term,” explained Nothard.

“Used vehicles are perpetually depreciating assets; unprecedented rises, even to levels close to or above the original cost of purchasing new, will always come back down, so the question is when will seasonal depreciation return, and to what extent?”

To access Cox’s AutoFocus report, click here.