Used car prices improve as demand exceeds supply
Normally, the values of cars are one-way.
The very act of leaving the dealership erases some of the money from a vehicle’s value, starting an unstoppable slide that will continue until a decade or so later, when they are thrown away as worthless junk. .
In the upside-down months since the pandemic, used car prices have steadily increased, due to an imbalance between supply and demand due to the coronavirus crisis and the shortage of chips.
Prior to this year, the biggest increase on record was 1% in February 2018. In May, they rose 6.7%, according to data group Cap Hpi, which has been tracking prices live since 2012.
“Cars normally depreciate, they don’t increase in value,” said Derren Martin, head of the data group’s valuations. “But at the moment the cars are an investment. “
The rise in prices is being felt in foreclosures in the UK, Germany and the US, with fears that it may reinforce inflationary pressures in other sectors of the economy.
In Germany, used car prices hit an all-time high in April, according to AutoScout24, one of the major dealerships. The average price during that month was € 22,424, more than € 800 more than at the start of 2021.
In April 2020, the average price was € 20,858, after increasing by around € 200 in one year.
“In the past, due to the season, the price curve typically declined somewhat in the early spring and summer months,” said the company, which has around 2 million cars on its site.
The reason for the turnaround is “probably a mostly scarce supply”, he added, “but the growing popularity of luxury cars and classic cars is also leading to a relatively large increase in average prices.”
In the UK, a one-year-old Audi A3 is now worth £ 1,300 more than the equivalent model a year ago, an increase of 7%, while Mazda MX5 sports cars are up 50 %.
“I’ve been doing this for 28 years and I’ve only seen this happen twice,” said Daksh Gupta, managing director of UK retailer Marshall Motors.
The other time was after the financial crash of 2008, when prices rose in 2009 as demand recovered faster than the industry could keep up.
This time, there are two main factors at play.
Demand for vehicles has increased since late last year, with consumers saving money by working from home and canceling overseas vacations splashing out.
Sports cars and convertibles have performed particularly well, but there have been increases across categories, with many motorists still wishing to avoid public transport.
A survey conducted in Germany by Deutsche Automobil Treuhand, which collects data on behalf of industry organizations, found that a third of used car buyers bought a second vehicle to help other members of their household avoid accidents. public transport.
“This is the highest level of used car demand I have ever seen,” said Robert Forrester, CEO of Vertu Motors.
Visits to Auto Trader, an online car marketplace specializing in used models, are 39% higher than in 2019 before the pandemic.
“Everyone thought it was pent-up demand that would collapse, but it held up,” said Ian Plummer, Commercial Director of Auto Trader.
But the real pressure comes from the offer.
The chip shortages caused by the pandemic were exacerbated by storms in Texas and a fire at a Renesas factory in Japan, one of the world’s leading semiconductor manufacturers.
This has left the industry with millions of vehicles running out, with little hope of making up for lost volumes until next year.
At the same time, stocks are low as few motorists are marketing new models and car rental groups are not unloading their engines.
Dealers also make more money.
“If they have enough cars, dealers are in an ideal position right now,” said Mark Lavery, Managing Director of Cambria. “The demand is crazy.”
But eventually, the supply of new cars will run out.
“New car buyers can imagine a vehicle that is one to two years old, but any older vehicle and they don’t care,” said Ivan Drury, used vehicle manager at US data group Edmunds. .
The imbalance between supply and demand will also get worse before it improves. Only a resolution of the flea crisis and a return to normal production levels will help stem the tide.
“When is it over? Said Plummer of the auto dealer. “It all depends on the balance between supply and demand, and how long we will remain as passionate about cars as we are now. It’s clearly months, but if it’s years, we just can’t tell yet. “