Surprising Decline in Used Car Prices Sends Ripples Through the UK Automotive Sector
The unexpected decline in the pricing of pre-owned vehicles has caught industry observers off guard, acknowledged an automotive specialist.
Phil Nothard, director of insights at Cox Automotive, the parent company of Manheim Auctions, shared with the Car Dealer Podcast that substantial drops in used car prices have sent ripples through the industry.
He elaborated on how the market had experienced a noteworthy deceleration in the past few months, coinciding with a rise in the availability of used cars in the UK.
Pre-owned vehicle costs have dropped by 13.7% since April, as per data from industry valuation specialists Cap HPI, and indications suggest a potential additional 4% decrease in November.
Nothard observed resilient segments in the market, particularly in used cars below £6k, but acknowledged heightened difficulty for cars surpassing that threshold.
Expressing concern, Nothard noted apprehension regarding the continued decline of prices for used cars.
Nothard acknowledged dealers are currently on 'buying bans,' hindering stock replenishment post-sales. He anticipates a challenging market throughout the year but emphasises the need for used car dealers to restock for the crucial first quarter.
Describing a transitional phase, he urges careful reflection on ongoing changes. Noting necessary price adjustments, he cites a 4.2% fall in October, causing sector-wide ripples and heightened caution among dealers, some facing buying restrictions. Balancing these dynamics poses challenges in the evolving market landscape.
Nothard anticipates a slight improvement in used car sales in the coming year but warns that 2024 will mark a pivotal shift for the industry. The repercussions of reduced new car sales during the pandemic in 2021 will manifest in a significant supply impact.
Cap HPI predicts a corresponding dip in demand, mitigating the decline in the new year. Nothard expresses anticipation of a challenging period, especially until the end of this month, as dealers grapple with selling existing stock at pre-reduction prices before restocking at the new lower levels.
Highlighting 'opportunities' for car dealers, Nothard stressed the importance of industry composure. He cautioned against ongoing panic, emphasising that sustained anxiety could drive market depreciation, urging vigilance as large groups could swiftly re-enter, shaping market dynamics.
Despite a 'downbeat' Q4, Cox Automotive anticipates 2023 used car transactions to reach 7.15m, marking a 4% YoY increase but 3% below 2010-2019 averages, considering weak demand and heightened supply. Vigilance towards year-end becomes crucial as dealers may stock up for Q1.
Nothard, in another statement, emphasised that current trade values persist unrealistically high despite recent drops. A unique four-year span with minimal depreciation, coupled with oversupply and renewed incentives in the new car market, has led to an unsustainable cost gap.
Used cars are now comparatively unaffordable, coinciding with reduced demand. Nothard acknowledges short-term challenges but highlights a return to a more sustainable market after a period of healthy returns.
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