Upcoming winter fuel crisis set to drive used car prices down

Used car dealers are facing ‘worrying times’ as the expected winter fuel crisis looks set to drive used car prices down, industry leaders have warned.

Experts say that cost-of-living concerns from customers are ‘biting hard’ and that the motor trade needs to be prepared for some tough months ahead.

One leading figure told Car Dealer that ‘only the most unrelenting optimist could suggest that there are no headwinds on the way.’

Jim Holder, editorial director at Haymarket Automotive, said: ‘These are worrying times for used car dealers, although the positive is that they are entering into it from a position of strength.

‘Prices have been unprecedented over the past 18 months, and despite a slip down from that point, so far the difference in profitability pre and post Covid is far from equalised.

‘However, only the most unrelenting optimist could suggest that there are no headwinds on the way.

‘The cost of living crisis is biting hard and, even if they are successful, the Government’s efforts to stave it off are likely to only reduce the pain rather than relieve it.

‘That is bound to impact on discretionary spending such as cars.’

‘If the depth of the recession is as bad as many analysts are forecasting, success is likely to be relative and hinge on identifying the positives.

‘Can nearly new stock be sold as an immediately available and cheaper alternative to a new car, can merits be made out of more fuel efficient cars’s capabilities of lowering your bills and can much in-demand electric cars deliver better margins, for instance?’

Also raising concern about the current situation was Derren Martin, director of valuations at Cap HPI.

He said that the firm is expecting to see a ‘suppression of consumer demand as a result of the cost-of-living situation’.

However, he believes the market will be helped by the fact that for many, cars will continue to be viewed as ‘necessity purchases’.

He told Car Dealer: ‘The current used car market is very stable, and has been so, unusually, for over four months now. We continue to see a plateauing situation for values for now at least.

‘In the coming weeks and months, we will potentially see decreases, particularly for values of cars for which the used price currently exceeds the new car price, as new car supply slowly improves.

‘There will also likely be continued suppression of consumer demand as a result of the cost-of-living situation, but there will still be a level of demand for used cars as “necessity purchases”.’

He added: ‘Values traditionally tend to drop in the final quarter of the year, as consumers start to focus on Christmas rather than making a big ticket purchase, and supply levels increase as part-exchanges and fleet returns hit the used market, as a result of new registration plate activity and increased volumes.

It is not unusual for values to drop by between three to five per cent in the final two to three months of the year, although this year of course supply levels are lower than normal, but prices are high and demand more muted. It is a highly unusual situation.’

He added: ‘The further we move into the future, we will see an increasing impact from the reduction in used car supply as a result of lower new car registrations from March 2020 onwards, especially from fleets and this will serve to support used values in 2023.

‘As always, the devil is in the detail and changes in used values will vary by vehicle sector, fuel type and age of vehicle, with an increasing divergence of used value movements at an individual model level.’

Despite obvious concerns from some areas of the industry, Auto Trader do not believe that prices will drop significantly enough to cause issues to dealers.

It believes that with prices currently running so far above normal levels, the trade will be able to survive any dips that may come as a result of the cost of living crisis.

Richard Walker, the firm’s director of data and insights, told Car Dealer that he thinks used car prices will remain stable for the foreseeable future’.

He said: ‘Although there are clear potential headwinds, the same market dynamics that fuelled last year’s huge uplift in used car prices remain, albeit on a far less dramatic scale.

‘As a result, we’re continuing to see healthy levels of growth, with average prices increasing circa 16 per cent year-on-year in August. We’re also seeing a slight increase on a month-on-month basis.

‘As we’d expect, demand is softening against last year’s record levels, but it’s still comfortably above pre-pandemic levels – the volume of advert views on our marketplace were up 16 per cent on August 2019.

‘Despite economic uncertainty, we’re confident these levels will be sustained by the circa four million new and used car transactions “lost” since 2020, as well as a range of other macro-economic factors, such as the huge backlog of people waiting for a driving test.

‘Coupled with the ongoing new and used supply challenges, these market dynamics will continue to keep used car prices stable for the foreseeable future – there’s certainly no crash in sight.’
There also appeared to be a lack of concern from from dealers themselves.

Car Dealer spoke to Cambria boss Mark Lavery, who told us: ‘We are already seeing a softening of the over two year old vehicles but I think it’s a gradual and steady reduction and we aren’t terribly concerned at this point.

‘The under two years old market is still strong and stable due to new car supply shortages.’

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