Plan Insurance Blog

Price Volatility in the Used Car Industry After Lockdown

How is the Lockdown Affecting Used Car Prices?

With the government announcement that car dealerships may be allowed to reopen from the first of June (provided government public health measures are met), there is much speculation in the industry about what this will mean for the used car sector. In an already volatile market (CAP HPI has reported unpredictable shifts in used car market values since the beginning of 2019), many are wondering how future values will be affected by a two month lockdown period.

Of course, the result of a country-wide lockdown is a dip in used car trade levels that makes it difficult to get a clear picture of the relevant trends. The data we have is scarce and often conflicting. Some points towards a downward shift in prices. At the beginning of lockdown, vehicle data specialists Cazana revealed a fall in used car prices on dealer websites, with petrol model values dropping by 2.8% in the last two weeks of March. The SUV sector was hit the hardest, demonstrating a steep 9.2% drop in prices on new listings in the same period. Similarly, reported recently that dealers have cut the prices of used cars by up to 2% over the past six weeks, whilst CAP HPI states that used car prices on certain models more than five years old have fallen between about 2% and 5%.

Though it would be fair to assume that a downward shift in prices comes as a direct effect of the Covid-19 shutdown, it’s possible that such a turn might still have taken place in normal circumstances. As Derren Martin (head of valuations for CAP HPI) reported in a recent interview with Car Dealer Magazine, there has been an average drop in the prices of five-year-old cars of around 4% in April and May over the past five years, proving that the market movements believed to be caused by the lockdown are not particularly out of character for this time of year. He also reported that, in light of a lack of information, there should be no movement in current values before more data is available. According to Martin, this should not be until the end of May.

Surprisingly, certain car retailers have reported an increase in sales prices. Auto Trader, the largest automotive marketplace in the UK, recorded a used car price increase of 0.1% based on data collected in April, the first rise in prices in the last eight months.

Such conflicting accounts demonstrate how difficult it is to predict how prices will be affected when dealerships reopen.

There seems to be an expectation amongst consumers that prices will plummet when markets reopen, causing concern with traders. Car Dealer Magazine reported a fear amongst independent dealers that some of their competitors might cave to low offers after weeks of little to no sales. If true, this will undoubtedly have a knock-on effect on the industry.

One thing is for certain: as auction houses begin grinding back into action and used car sale volumes jump by 70% this week, industry experts everywhere will be keeping their eyes peeled for more concrete information.