Are used car prices falling?

Used car prices have seen incredible growth over the last two years as a direct result of the pandemic. Why?

It’s partly down to a curious side effect of the pandemic which saw consumer spending power massively increase since many were saving funds, they would have previously spent on activities we considered commonplace but that were restricted by lockdowns etc. Remember the days of no eating out and no holidays abroad?  This combined with consumers opting to use personal rather than public transport meant that demand soared far above pre-pandemic levels and, with the much-reported stock shortages in play, prices soared.

But fast forward to the present day and pandemic restrictions are all but gone, with people now eager to resume holiday’s abroad and a cost-of-living crisis combined with war in Europe denting consumer confidence.

So how is this impacting used car prices?

Be in no doubt that used car prices remain incredibly strong with the week of the 18th April seeing used car prices up 26.5% when compared to the same time last year.

Of course, year-on-year analysis only tells part of the story with prices continuing to be strong but the growth reducing. If we look at the price trend week on week this is where we are seeing some declines, when during the pandemic we saw continuous growth. What is important however is that this is what generally happens due to seasonal movements at this point in time in a “normal” year. These declines are very much in line with what we saw in 2019 and would have to fall significantly to reverse the growth we are still seeing year on year.

The week-on-week data also shows that the pricing fluctuations we have seen so far this year are in line with the seasonal patterns we’ve seen in previous years as you can see in the chart below.

Is demand dropping?

Pricing then remains strong, and we do not see any indicators of the “price bubble” popping anytime soon.

Demand, one of the key factors influencing prices, continues to remain strong when compared to normal trading conditions in 2019. The average time it takes for a used car to sell is significantly faster now for all fuel types compared to last year, with the median time taken for a used car to sell now just 27 days, 10% faster than the same time last year, but the volumes of sales are at a lower level than 2019 in part because of the challenges in supply.

But we are seeing signs of demand starting to soften as our Data and Insight Director Richard Walker highlights.

Richard Walker, Data & Insight Director, Auto Trader

“The market has ‘softened’ in terms of vehicle sales compared to the ‘normal’ trading conditions of 2019 and are about flat when compared to last year. It could be described as a more normal market with more predictable seasonal demand in play but supply of some vehicles are still constrained. Our view of this softening in demand could be being interpreted as worse than it is, this is due to some of the behavioural changes we saw from consumers through the pandemic reverting back as we get back to a more “normal” market. Demand indicators, like leads, are softening. Some of this is market and some is down to behaviour change, with some buyers going back to walking into physical forecourts without sending a lead. We are seeing some indication through maps and directions and website traffic clicks that this is happening. It is not going completely back to levels we were seeing in 2019, those jobs that can now be done “digitally” by consumers that help them get to a decision quicker and start the buying process online continue to grow in use and consumers are very keen to carry out more of their purchase online.

What’s in store for the market in 2022?

There are certainly headwinds for the market as we edge towards the middle of 2022 with the cost-of-living crisis tightening many consumers spending power. But, as Richard points out, “there’s a reasonable case for the used car market weathering the storm reasonably well. No one knows 100% today where consumers will cut discretionary spend, but for most, a car is not seen as discretionary. Buyers may trade down makes / models or use the car less but are unlikely not to purchase at all.

“We are also seeing stronger demand at lower price bands than during 2020 and 2021 – suggesting now people have more things to spend on and some concerns over increasing costs they are choosing to look at cheaper alternatives rather than not change at all.”