Used car prices keep going up and up. Here, we look at why this is happening and whether the end is in sight.
Over the past couple of years, used car prices have been on the rise. At the moment, if you’re looking to buy a second-hand motor, you’ll almost certainly pay more for it than you would have paid for an equivalent car pre-pandemic.
Here, we will take a look at what is driving these price rises, and investigate whether there are signs that they could be about to return to normal levels.
How much have used car prices gone up by?
In 2021, the average used car price increased 30%, with some models going up 70%.
There have even been instances of used cars being more expensive than their new equivalents. In late 2021, a one-year-old Dacia Sandero was selling for about £2,000 more than the circa-£9,500 price of a new model, for example.
In July 2022, the average used car cost just over £17,000 – an increase of about £4,000 on pre-pandemic levels.
Why are used cars so expensive right now?
There has been a perfect storm of scenarios that have caused used car prices to shoot up.
Pent up demand from lockdown
Used car prices started their rise because of pent up demand from the pandemic – particularly the first national lockdown, which saw dealerships close as they figured out whether they could safely sell cars within restrictions.
Although online buying and contactless deliveries eventually became the norm, sales nosedived as buyers held on to cars for longer, in many cases choosing to wait for lockdowns to end before making their next purchase.
More disposable income
Having not spent money on holidays, commutes and so on, many people found they had accumulated spare cash as lockdowns eased, and a new car was often seen as an ideal treat.
This increase in disposable income combined with the pent-up demand that had accumulated when dealerships were closed, pushing used-car prices up further.
Semiconductor chip crisis
The global semiconductor chip shortage saw the value of second-hand cars skyrocket, with this being most sharply felt as the UK emerged from its third lockdown in April 2021.
Modern cars rely heavily on computer chips for everything from infotainment screens to safety systems and engine management controls, but with sales slowing during the pandemic, other electronic devices that were booming – such as games consoles and mobile phones – took up the supply.
When new car sales showed signs of a return to normal, manufacturers could not source enough chips for their cars. This affected almost all manufacturers to some degree, with wait times of over a year for some models, and other cars not even available to order.
Priority has been given to more in-demand cars and those that help them achieve CO2 targets, such as electric vehicles, which has negatively impacted some models more than others.
As a result, buyers turned to the used market rather than wait months for a new car to arrive. This huge shift in interest has seen prices continue to rise, with little sign of a slowdown.
Low used stock
With fewer new cars being sold, fewer part-exchanged cars are entering the used market. People are holding onto leased and financed cars longer, and manufacturers don’t need to pre-register cars as they are already struggling to shift enough vehicles.
This means the availability of good stock is lower than demand, further bumping used prices.
When will used car prices drop?
Sue Robinson, Chief Executive of the National Franchised Dealers Association, said this month (August 2022) that the organisation expects used car prices to remain strong in the near future. Used stock remains low and wait times on new cars are still high, driving buyers to second-hand cars.
Experts have speculated that the chip crisis should sort itself out by the end of 2022 or early 2023. However, external factors – such as Russia’s illegal invasion of Ukraine, which has caused further supply issues for car makers – continue to disrupt the industry.
How can you avoid price rises? The best way is to hold on to your current car and wait it out until prices return to more sensible levels. However, if you can’t wait, try to be more flexible with aspects such as the trim, engine or even model you’re looking for.
You could also take a look at the lease market for both new and used models, as there are plenty of options available for immediate delivery.
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There are also plenty of fantastic deals on leasing a new car, with many models available for a low monthly price.