Storms ahead or a sunny outlook: Our market predictions for 2022
At the start of the New Year we’ll be sharing our forecasts on the trends and themes we believe will shape automotive retail in 2022, but as this year comes to a close, we thought we’d reveal our prediction for the market itself.
The last two years have been far from normal, as retailers have been forced to contend with not only a global pandemic, but also a global shortage of semi-conductors and other raw materials, both of which have had a profound impact on the market.
This year we have seen quite unprecedented levels of consumer demand for both new and used cars, fuelled by a variety of factors, but not least the 1.4 million sales which were ‘lost’ over the course of the pandemic. This increased demand is reflected in the huge surge in traffic we have seen on our marketplace, with the average number of cross platform visits increasing circa 30% on 2019 levels. However, the growing constraints in both new and used car supply, have undermined this massive demand, and whilst many retailers have reported exceptionally strong years, there’s no question the speed of the market’s recovery has been seriously hampered.
This increasing imbalance between supply and demand, has had an extraordinary effect on used car prices. Year-on-year (YoY) growth had already reached record levels by the beginning of the year, but as the full impact of the new car shortages began to be felt in May, placing further pressure on an already constrained used car supply chain, the levels of price growth accelerated dramatically. So much so, that we’ve seen five years’ worth of price growth in just six months, with prices increasing a record 28.6% YoY in November. This growth has created a sellers’ market, with very strong margins available.
As we look to 2022, the question is whether these market dynamics – low supply, and high demand – can continue? Well, from what we’re tracking, the answer is a resounding yes. Demand will be driven by a growing economy and a robust jobs market, as well as an increasingly positive sentiment towards car ownership, a growing number of younger drives coming into the market and the aforementioned backlog of missed sales. Coupled with the fact the new car supply challenges will continue until at least the middle of next year, any speculation that these dynamics, and therefor used car prices, will change / fall anytime soon, is simply not correct.
New and used car market forecasts
It’s these dynamics that have helped shape our predictions for next year, along with our industry leading data and input from leading industry figures, as well as consideration for potential headwinds, such as growing inflation (which our analysis shows has historically had limited impact on used car transactions).
In the charts below you’ll see our forecasts for new and used car transactions in 2021 and 2022. Both charts include a wide range with a low, medium and high outlook to account for unknowns for the year.
New: With free supply, our modelling calculates a circa 2.4 million 2022 new car market, based on the latest economic projections. However, supply will ultimately dictate the new car market, which we expect to land at circa 1.63 million this year (in line with 2020), and next year between 1.75 – 2.12 million.
Used: On used cars, we expect transactions to recover to nearer 2019 levels at between 7.71 and 7.95 million, ahead of 2021.
These forecasts are based on no further lockdowns or disruptions to trading conditions.
Do you agree with these predictions? Are you seeing evidence of these market dynamics on your forecourt? What are you expecting for next year? We’d love to hear your thoughts in the comments.