Analysis: why used car prices are set to rise further

Since April, values expert Cap HPI has raised its trade prices for used cars by almost 14%. “What’s happening is a completely new phenomenon,” said Derren Martin, the firm’s head of valuations. “For example, I’ve been tracking the estimated buying price quoted by webuyanycar.com for a Toyota GT86. Over the past few months, it has gone from £14,000 to £10,000, then back to £14,000, up to £16,000 and now it’s £19,900. I suspect that the company, which owns Cinch, the online car retailer, is finding itself competing with dealers to secure fresh stocks at a time when fewer used cars are available.”

In part, the shortage is explained by the fact that one million fewer new cars were sold in the past 12 months, reducing the number of part-exchanges. Of the new cars that were sold, many are taking longer to arrive due to delays in the supply of semi-conductors and raw materials, also slowing the supply of part-exchanges.

According to a What Car? survey, these delays are why a third of new car buyers are considering a used car instead. Add pent-up demand from both savings-rich customers and dealers and rental fleets desperate to restock and, said Martin, there’s an imbalance of supply and demand that is pushing up used car prices.

Sectors experiencing the greatest increases include sports cars, premium cars and SUVs; diesels, too, especially large premium cars and SUVs. What’s more, there is no clear end in sight.

Martin said: “There’s not a tsunami of used car stock coming that will see prices fall off a cliff. Indeed, some dealers have still to realise prices have risen, but when they find that replacing stock is more expensive than they realised, they will have no choice but to put up their prices. Looking further ahead, I can see new cars becoming more expensive, which, in turn, will drag up the prices of used ones.”

One consequence of the reduction in the supply of used cars, especially good-quality part-exchanges, is dealers’ renewed focus on the used cars they have and their readiness to retail older ones. For example, last year, Volkswagen brushed up its approved used car scheme, extending its 12-month warranty, MOT insurance and roadside assistance benefits to two years. Elsewhere, faced with increased competition for nearly new cars, some major car supermarkets that specialise in them are relaxing their age and mileage limits and now stocking older ones, too.

Philip Nothard, insight and strategy director at Cox Automotive and chair of the Vehicle Remarketing Association, believes some dealers shopping beyond their usual hunting grounds are being caught out by the rapid rise in car prices. He said: “One independent dealer planned to buy a BMW X3 for £32,000 and retail it for £36,000 but was beaten to it by another who paid £37,000 and will advertise it for £41,000.” Others, Nothard said, are unprepared for the extra maintenance and preparation costs associated with older cars.

Cox thinks new car supply issues will continue to fuel the current used car price boom but predicts the situation will stabilise as winter arrives, furlough ends, the economy opens up, causing consumers to spend their money elsewhere, and the government begins to recoup loans. Until then, sellers can look forward to ever higher prices for their cars unless, of course, they’ve an old petrol or diesel model to shift and they live in London.

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