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Used car values set to remain strong

Posted on:
July 28, 2021
Posted by:
Donal Murphy

Many of the used cars sold across Ireland make their way to our shores from the UK. So, trends in used car prices in the UK impact the prices over here and right now, those prices are rising sharply and show little sign of slowing down. Nor is the phenomenon restricted to the UK – used car values are rising in all the major markets, including the USA.

First off, What is the Increase?

It is significant. In the UK, double-digit price increases year-on-year have been the norm. Used car marketplace Autotrader, which has over 421,000 cars advertised, estimated prices had risen 12.6 per cent in the week commencing July 12. The latest rise marked the 63rd consecutive week of price rises.

So why? In short, there can be little surprise that the answer is that demand is outstripping supply.

Pent Up Consumer Demand

The first half of the price rise equation is strong consumer demand. Classically in a period of economic stress, people are more inclined to buy a used rather than a new vehicle. The perception is that a used car represents better value and this often comes with a lower price.

The pandemic and lockdown conditions have certainly been a period of economic stress, but while some people have sadly struggled financially, others, unable to spend their money, can now open their wallets. With some restrictions still in place, a car is something they can spend their money on.

Added to this group is another source of demand, people switching from public to private transport.

Finally, there is a group of people who would prefer a new car, but who do not want to wait for it to be delivered because there are long waiting times.

Supply Issues

The pandemic brought the economy to a halt initially. Businesses did not buy cars or vans, choosing to extend their change cycle and car rental fleets slowed their activity. Both are significant sources of younger used vehicles. Neither has accelerated their strategy significantly to date. In short, a major source of used cars has not been available.

New Car Production Issues

Many manufacturers shut their factories during the numerous lockdowns worldwide, as did the component companies they rely on. Re-starting production has been a slow process, exacerbated by the production shift away from fossil fuel to electric vehicles. One particular component has been a problem, microchips.

Modern cars can easily contain 3,000 microchips, and there is a worldwide shortage of them, slowing down new car production. In 2021, the global output of new vehicles will drop by four million units.

Is the End of Rises in Sight?

It does not seem to be; the more interesting issue is, will the current levels create a new pricing benchmark? It is certainly possible, but much will depend on the same old supply/demand issue, and the shift to alternative-fuelled cars could complicate this.

Donal Murphy
Managing Director
Bluestone Motor Finance

Article tags:
used cars
This article was written by:
Donal Murphy

Managing Director - Bluestone Motor Finance

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