The Society of Motor Manufacturers and Traders (SMMT) has reported that new car registrations in the UK fell by 14.3% to 243,479 in March on last year. Whilst the fall is largely attributed to the lack of new car supply there are also concerns that the current cost of living crisis may be leading many to delay moving into their next vehicle. So how will this affect the used car market over the course of this year? These are our thoughts.
Used car prices
Whilst there have been reports of used car prices falling recently we expect prices to remain high over the remainder of this year and certainly way above pre-pandemic prices. We think demand for used cars will continue to exceed supply. Although many consumers are struggling with higher energy, food and fuel prices they will need to remain mobile to ensure they can work during this difficult period. Running a car has therefore never been so important to those that are unable to work from home and may even need to work longer hours to fulfil financial commitments. The impact of Covid has also shifted workers away from using public transport towards car mobility in order to avoid the risk of infection. With the UK recently seeing the highest number of infections since the start of the pandemic it is difficult to see any shift back towards public transport – particularly given that train and bus infrastructure is lacking in many parts of the UK and is often no cheaper than running a car. The volume of train journeys made is currently only 60% of pre-pandemic levels.
Demand for older vehicles
We expect to see a further shift in demand towards older vehicles in relatively good condition. This trend has already been in play particularly due to the limited supply of vehicles in the 0-3 year age range and given their high prices. The cost of living crisis could lead to a change in the mindset of those whose real income’s are constrained – with drivers settling for older more affordable cars that will get them from A to B. After all the manufacturing standards of vehicles have continued to improve and many models remain reliable even with higher mileage – so long as they have been looked after.
Used car transactions
We expect there to be continued high volumes of used car transactions in the market over the next year. We think there be an ongoing substitution effect of sorts. Those that cannot get hold of a new car will continue to look to the used market for their next purchase. The nearly new low mileage vehicles will be sold at a premium. As above there could be an ongoing shift towards demand for older more affordable vehicles. High used car prices offer an opportunity for those struggling financially to obtain a lump sum of cash for their current vehicle by selling or settling finance and, if necessary moving into a cheaper car. This sort of activity of course presents opportunities for traders too.