The rollercoaster ride for used car prices over recent years continues. Depreciation, the difference between a car’s purchase and resale value, has historically been pretty steady without much need for car owners to regularly review it.
However, disruptions such as the semiconductor shortages and supply chain issues during the pandemic saw used car prices spike. At the height of the used car boom in 2021 and 2022, used cars in good condition could go for the same price as new vehicles.
As the industry slowly returns to normal post-pandemic, depreciation rates are again being governed more by factors like brand reputation, initial pricing, age, mileage and standard market forces.
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Today’s market trends
August has shown signs of a decline in used car prices, potentially marking the most significant drop this year. Experts from Cap HPI weigh in on this trend and what the future might hold for the automotive market.
As of mid-August, average used car values have descended by 1.2%, making industry specialists, like Derren Martin, director of valuations at Cap HPI, predict around a 2% drop by the end of the month. If this carries on, it will be the most substantial decrease in 2023.
Martin says that the current price adjustment should not be mistaken for a market crash. While values are higher compared to a few years back, the present decline signifies a realignment, largely influenced by the increasing volume of cars entering the market.
The summer season, known for fluctuating car demands, has seen retail prices remain stable. However, August is traditionally a month of minimal value drops, making this year’s notable descent all the more significant.
Electric vehicles are depreciating even faster
The depreciation rate of used electric vehicles is slightly more pronounced, with an average fall of 1.5% by mid-August. However, not all EVs have been affected equally. For instance, while the Hyundai Kona has seen a 1% rise, models like the Polestar 2 and the older Renault Zoe have observed drops of 6% and 4%.
Martin suggests that EVs are currently finding their place in the market, and some lower-range EVs might appear overpriced.
Across the board, there is definitely a downward trend. Even convertibles, typically in demand during the summer, are declining by 1.4%. While hybrids, both plug-in and self-charging, haven’t experienced the expected drop, Martin predicts potential pressure on these models soon.
Furthermore, although EV prices have reduced, they still constitute a minor fraction of the used car market, implying they won’t significantly influence petrol and diesel prices.
Even though EVs are now cheaper compared to petrol cars than ever before, most experts don’t believe that this will have a meaningful impact on EV adoption. As an example, a year-old Vauxhall Corsa-E is now £2,000 cheaper than its petrol version, but this hasn’t driven a significant sales surge. However, retailers who have invested in popular used EV models like the Nissan Leaf or Tesla Model 3 are seeing decent returns.
Challenges and opportunities for dealers
With rising living costs and heightened interest rates, many customers are reconsidering their purchase decisions, often choosing to keep their current vehicles. Dealers also face challenges with damaged cars due to extended delays in procuring parts.
Despite these challenges, industry figures remain optimistic. Martin sees reasons to be positive, “Bearing in mind the cost of living concerns, the market is doing well.” As September approaches, he foresees an influx of vehicles from fleet and leasing companies, providing dealers with a larger stock to choose from.
The recent changes in the used car market, particularly concerning EVs, are a reason to be cautious but not to panic. With a steady influx of vehicles and the market’s ability to adjust, both buyers and sellers should remain informed and adapt to the evolving landscape.