Prices for used cars are booming, sparked by computer chip shortages for new cars. However, industry experts says that a lack of good two-to-three-year-old cars coming back into dealerships is helping to inflate prices further.
Throughout the summer of 2021, values have been rising strongly. According to industry experts Cap HPI, three-year-old stock is on average up 20.5% over the past five months. Normally, a similarly aged car with 60,000 miles on the clock would lose 5% of its value each year.
Dealers have been so desperate for stock that some have avoided the traditional trade auction method of sourcing cars, and have been turning to private owners to fill out forecourts by offering strong trade-in values.
Strong price rises across the board
‘Consumer demand has remained very strong in June, despite half-term, great weather, and Euro 2020 to distract people. With stock-turn high, this has led to retailers requiring a constant supply of cars to replenish their forecourts,’ said Derren Martin, Head of Valuations at Cap HPI.
‘Well-documented new car supply issues resulting from several component shortages, have led to fewer fleet returns and part exchanges. This has caused demand to outweigh supply for the third month running.’
While 20.5% is the average rise, some cars are doing rather better than that. The Toyota Auris Hybrid is up by 48% (£4,628) over the past six months, while the Mercedes-Benz C-Class Cabriolet will hit your wallet 44% harder (£7,875). More humble, everyday cars are seeing uplift, too – even the Vauxhall Mokka (2013-2020) is up 44% (£3,663) over the same time period.
No change expected yet
Cap HPI doesn’t foresee the bubble bursting any time soon, and instead predicts that they will peak at 30% above last year’s values in December. ‘With new cars being in such short supply and likely to continue to be so for at least the next quarter, there is no bow wave of fleet returns coming through,’ says Derren.
‘One million less cars have been registered than would reasonably have been forecast over the last 18 months. These cars are lost to the used car market. It will be a while before supply outweighs demand again.’
However, the situation will not last forever. With Covid-19’s restrictions on movement gradually coming to an end and commuting costs possibly becoming a factor again, Cap HPI is predicting a period of heavy deflation into 2022, dipping to -16% by the late summer.
What this means for you
If you’re looking to sell, now is a great time – but of course, your next car will be much more than it will be next year. However, this does present some interesting options – with the extra money you’ll receive from getting rid of your more modern car, you could buy something older and cheaper and pocket the windfall, or use that money to buy something older and little more special, with a sizeable warchest if it needs work.
With the growth in flexible office working, the need for an everyday commuter is less, meaning something special for occasional use may make sense.
Finance deals have to be looked at very carefully – if Cap HPI prices fall by as much as planned, that could leave you with a lot of ‘lost’ finance. Always study the small print carefully – given the market, it might be better to finance a purchase with a low-interest bank loan rather than a traditional finance deal.
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