Will used car bubble burst?

DASHBOARD WILL THE USED CAR BUBBLE FINALLY BURST IN 2023?

Mazda had the highest ‘reverse depreciation’ for used cars in 2022

November’s dip in used car prices could be a sign of bigger things to come – but not immediately.

Over the past three years, the used car market has boomed. Prices have risen across the spectrum as supplies of new models have been held up by the coronavirus crisis and global supply issues with semiconductors.

But with experts predicting new car sales will rise by more than 20 per cent in 2023, even against a challenging economic backdrop, the market for used models could well be about to do a hard reset – and not before time for stockstarved used car retailers or the general car-buying public, who have been paying substantially more for older models in the past two years than they have in recent memory. It’s not something that will happen quickly, though.

Used car sales platform Auto Trader is predicting a 22 per cent rise in new car sales in the coming 12-month period. Brand director Marc Palmer said: ‘With so many different variables at play, predicting the direction of the market is never an easy task, and not one we take lightly. But as ever, we are led by the data.

‘As we have found this year, the market performance has been dictated by supply, not demand. We have consistently seen on our marketplace, where there is stock there is strong demand, whether that be for new or used cars – a trend we fully anticipate continuing into 2023. And while the year ahead will be a demanding one, based on what we’re tracking across the market, we believe it is in a far stronger position than previous periods of economic turbulence.’

This, in part, is thanks to pent-up demand in the marketplace. Mike Hawes, chief executive of the SMMT believes that even in tough economic circumstances, demand for new cars remains. He said: ‘The automotive market remains adrift of its pre-pandemic performance but could well buck wider economic trends by delivering significant growth in 2023.’

This will have a knock-on effect on used car values. But any softening in prices isn’t likely to be immediate. The upsurge in new car supply, which is predicted but not yet in the pipeline as semiconductor production remains in high demand, will eventually lead to a tailing-off in used prices, though.

Indeed, in some areas of the market it already has. According to online sales platform Autorola, diesel prices fell in Q4 of 2022 by 5.8 per cent, which it put down to used stock simply being older than it used to be, as fleets are forced to extend renewal times because of the compromised supply situation with new cars.

More pertinently perhaps, used EV values fell by 8.3 per cent, which Autorola attributed to customers being concerned about overstretching themselves to cover the generally greater purchase costs against a challenging economic backdrop.

Autorola’s UK group sales director, Jon Mitchell, said: ‘We are witnessing a shift in the type of stock we are selling, with diesels proving less popular and petrols and hybrids increasing in popularity. Used EV demand and prices meanwhile are falling during the current cost-ofliving crisis, which is helping boost both petrol and hybrid sales.’

Used car prices fell for the first time in over two years in November 2022, albeit by just 2.7 per cent after a 19 per cent year-on-year increase, but they were still up year on year.

According to ALA Insurance, which offers gap policies, the highest ‘reverse depreciation’ (ie, increase) in 2022 went to Mazda, with used values of its models increasing by 20.1 per cent during the year, followed by Skoda at 13.9 per cent. The average cost of a used car in the UK at the end of 2022 was £18,066. But if the UK economy follows that of the USA, prices could be about to tumble. Following 12 months of record inflation, used car prices in the North American market fell by 14.9 per cent in 2022 as a lack of consumer confidence saw sales drastically wind back. The flip side of this, of course, is that a collapse in used car values will contribute to a drop in inflation as a whole.

Predicting the direction of the market is never an easy task, and not one we take lightly.

We are witnessing a shift in the type of stock we are selling...Used EV demand and prices are falling.

Marc Palmer Auto Trader’s brand director

Jon Mitchell

Autorola’s UK group sales director