Monir Uddin was scouring for a replacement recently for his family’s diesel vehicle at a used car dealership in London ahead of further clampdowns on polluting personal transport later this year. But soaring prices for second-hand autos were giving him cause for concern.
“The price is a bit too high. We’ll leave it as it is for six months or a year,” he said. “They haven’t got as many cars as usual around here now.”
He is one of many British consumers feeling the fallout from a once-in-a-lifetime boom in the second-hand car market, with record numbers of consumers seeking to own or upgrade vehicles during the pandemic just as supplies in new cars have ruptured.
Cars typically start depreciating as soon as they leave forecourts. But this year there has been a sharp turnround in second-hand car values across the world, including the UK.
The average asking price for used cars has shot up 15.2 per cent year on year, resulting in a sudden gain in value for most vehicles, according to Auto Trader, an automotive advertising business.
The rise in prices of second-hand cars was identified as a key driver of UK inflation in July — and the industry is abuzz with forecasts on how long the boom will last.
“I’ve never seen anything like this,” said Mark Lavery, chief executive of Cambria Automobiles, a dealer group. “It’s an absolute freak set of circumstances.”
The pandemic caused a build-up of unsatiated buyers and fuelled additional demand. Consumers sitting at home during lockdowns amassed extra piles of spending money that were unleashed when coronavirus restrictions were eased.
“The main reasons for cars increasing in value are an increase in demand from ‘accidental savers’ — people not going on holiday as much or socialising over the past 18 months,” said Derren Martin, head of valuations at Cap HPI.
Demand has been further bolstered by people’s reluctance to use public transport because of the risk of catching coronavirus, the trend in staycations within the UK, as well as a growing acceptance of buying cars online.
However, a shortage of new cars, primarily because of the crunch in the supply of semiconductors, has turned a fiery market red-hot.
“Shortages of new cars leads to a shortage of used cars and to appreciation,” said Lavery.
The Society of Motor Manufacturers and Traders, the UK automotive trade group, has slashed its forecast for new registrations in 2021 from 2.4m to 1.8m because of the restricted supply of new vehicles. This week, the trade body reported the worst July for UK automotive production since 1956.
Many people are simply unwilling to wait months or even a year for their car of choice to arrive.
Catherine Faiers, chief operating officer at Auto Trader, estimates that up to 200,000 consumers that would have bought new cars will buy used cars this year. “People are buying relatively new where there’s availability,” she said.
Brexit-related stockpiling meant that car dealerships were relatively well stocked with new cars at the beginning of the year, according to Daksh Gupta, chief executive of Marshall Motor Holdings.
“The UK for four or five months didn’t experience any supply issues,” he said. “Supply issues are now starting to kick in.”
Auto industry analysts say the impact, while delayed in the UK, has perhaps been greater than in other countries. Carmakers’ headquarters — and by extension their supply chain gurus — tend to be located outside of the UK, making it trickier for dealers to get reliable information on when supply will arrive.
Carmakers have prioritised the production of electric models in order to avoid fines and meet regulatory requirements, leaving electric vehicles relatively unaffected by the chip shortage. That has meant battery-powered cars have been a rare exception in the roaring used car market.
“The soggiest part of the market is electric vehicle prices,” said Robert Forrester, chief executive of Vertu Motors.
The supply issues are not just restricted to new cars with the flow of vehicles into the used market coming under pressure. The new UK car market was weak in the preceding three years, leading to fewer used vehicles coming to dealers.
Meanwhile, fleet operators and rental groups that usually buy new and sell on later to the used market, are holding on to cars for longer and even becoming buyers in the used market.
Dealerships are now fighting to get their hands on supply while consumers are rethinking if it is the right time to buy.
Philip Nothard, insight and strategy director at Cox Automotive UK, said “the used vehicle marketplace has become very competitive when supply is at its lowest point”, referring to new digital dealers such as Cazoo and Cinch.
In a sign of the pressure, Cambria Automobiles’ Lavery said his company’s stock of vehicles was down 75 per cent in August compared with the same month in 2019.
Limited choice does not seem to be the only factor putting off potential customers. Kyle Ashworth was hoping to trade in his Ford Mustang that he bought in 2016, which has risen in value from £22,000 to £30,000, but he was put off by the 25 per cent rise in prices for other vehicles he had his eye on. “What you get is not much for your money,” he said.
However, dealers see no quick resolution to the pressures in the used car market so long as the semiconductor shortage rumbles on.
“When is this all going to unwind? We expect it to be here for 2022 and probably into 2023. Even if the chips do come through, you can’t just switch on a load of vehicle production,” said Marshall Motor’s Gupta.