When Will Used Car Prices Drop?

If you’ve dipped your toes into the used car market recently, you may have noticed that prices are a little steep compared to where they were a year or so ago. According to used vehicle pricing specialist Indicata, used car prices in the UK rose 28% across the first 11 months of 2021 as supply issues impacted – and continue to impact – the new car market heavily.

For the average used car punter, then, there are a few questions. Firstly, why are used car prices increasing so much? Secondly, when can we expect second-hand car prices in the UK to drop? And thirdly, with the above in mind, is now a good time to buy a car?

Here’s a run-through of where things stand right now.

Used car prices in the UK market have been rising since mid-2020, to the point at which the increase of second-hand car prices has arguably been the biggest automotive trend to span from the pandemic. The problem behind second-hand car prices rising boils down to a simple but very global case of supply and demand, but the factors behind those supply chain issues are wide-ranging and complex.

The main considerations in play are:

• The global chip shortage: one of the biggest impacts on global industry stemming from the pandemic is the overwhelming demand for integrated circuits – used in cars, games consoles, computers and other key electronics – against a failing supply. The increased demand spans from growing remote-working habits, while supply issues are a result of factory shutdowns through lockdowns as well as mass cancellations of orders from manufacturers through the pandemic. For the automotive industry, that has meant a huge dent in new car production amid spiralling demand, meaning that buyers are turning to the used car market in big numbers.
• Used car stock shortages: alongside new car supply issues, used car dealers have also experienced a shortage of stock due to a low number of trades-in during the pandemic. Indeed, many dealers found themselves largely inactive through lockdown, which limited the opportunity for custom and a strong part-exchange market.
• Surprise demand out of lockdown: perhaps one of the more surprising products of the lockdown is the increased financial mobility of many Brits as a result of limited spending through quarantine. Undoubtedly a factor in the similarly soaring property market, the automotive industry was somewhat taken by surprise by the amount of ready-and-willing buyers looking for a new vehicle straight out of lockdown – further straining supply issues.
• Rise of online dealers: the increase of online dealers – such as Cinch and Cazoo - with significant advertising power over the last few years has also placed more of a spotlight on the used car market, with consumers being encouraged to buy a used car more than ever before.

All of the above have contributed to second-hand car prices rising to unprecedented rates, with the AA reporting that some of the UK’s most popular cars have increased in value by 57% since 2019.

With used car prices recording five years’ worth of growth in the space of six months through the back end of 2021, the natural question to ask is: when will the bubble burst? Indeed, most used car buyers will be both hoping and assuming that what goes up must come down. However, that may not actually be the reality that lies ahead.

Global automotive services experts Cox Automotive have suggested that second-hand car prices in the UK may never return to pre-pandemic lows. This is due to an ongoing shortage of stock, with the market having lost a projected 1.4m vehicles through the crisis via limited new car sales and reduced activity in the fleet and lease sectors across 2020 and 2021. Because of this, it’s likely we’ll see a notable shortage of two- to three-year old stock in the next couple of years, which in turn will have a knock effect in values of the cars that are available.

As a solution, used car retailers may look to fill their forecourts with older stock to make up for the upcoming shortfall – by no means an ideal solution for buyer or seller, but one that may offer a pricing stop gap while new car, fleet and lease registrations recover. With the recent arrival of online disruptors such as Cinch and Cazoo increasing customer focus on second hand sales, it’s certainly interesting times in the used car market for both dealers and customers.

On a more positive note, projections from Cox and other sources suggest that the market is set to soften in 2022 – it’s just a case of when that will be. According to vehicle valuation specialists Cap HPI, there will be no “seismic” shift in used-car values in the first quarter of 2022 as limited supply and strong demand remain in the new year. Cap HPI’s Head of Valuations, Derren Martin, has predicted that used-car values will stay roughly where they are until the summer at least.

All of the above presents an interesting dilemma for those looking to buy a used car in the coming months. So, is now a good time to buy a car in the used market? There are a few things to bear in mind when answering that question.

Firstly, the contributing factors to current used-car rates are set to remain for some time to come. As discussed above, stock shortages are set to continue alongside high demand, while the global chip shortage is expected to extend into 2023.

Secondly, it is still possible to find cheap used cars for sale in the UK, depending on what you’re looking for and where you’re looking. Unsurprisingly, it’s popular mainstream models that have seen their price increased the most over this remarkable period. For those buying outside of the standard commercial market – for example, in the luxury car segment – it’s likely that any price rises won’t have hit as hard.

Thirdly, for those part-exchanging, now is as good a time as any to pull the trigger on a purchase. Today’s used car market is undeniably a seller’s one – but that means that buyers using their old vehicle as collateral will get more or less the same deal now as they will in a softer market, as prices will soften on both sides in due course.

With used car prices set to remain roughly as is for the next six months at least, many speculative buyers will feel that’s too long to wait to secure their new vehicle – particularly with no guarantee of sizeable price drops in the second half of 2022. With the part-exchange market strong and cheap deals still to be found outside of the mainstream channels, it’s likely that many buyers will still pull the trigger on a second-hand purchase in the coming months.

With over 50 years’ experience in the new and used luxury car market, we’ve always looked to couple great service with fair prices on an outstanding range of luxury vehicles. Today, we’ve got plenty of models in stock from some of the very best manufacturers in world – and, with part-exchange options available to all customers, a great deal on a luxury car could be just around the corner.

To get started, book a virtual appointment with us today or visit your nearest Jardine dealer to see what we’ve got to offer.

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