Auto Trader expects used retail pricing to continue to stabilise

Used retail prices have continued to stabilise in July with a flat 0% performance on a month-on-month and like-for-like basis, according to the latest data from Auto Trader.

As well as being consistent with seasonal trends, it marks the strongest pricing performance in three months and the second strongest since April 2023.

Highlighting the current nuance of the used car market, Auto Trader’s data, which is based on approximately 800,000 daily pricing observations, pricing growth was even more robust for ‘middle-aged’ cars in July.

In fact, due to demand outpacing supply, those aged one to three-years-old rose 0.4% MoM, while cars aged three to five and five to 10 saw prices increase 0.2% and 0.1%, respectively.

Across the retail market more broadly, levels of supply remain constrained, with the volume of available stock contracting 5% year-on-year in July, which is the fourth consecutive month of decline, and the steepest fall since the same period last year.

However, it was met with high levels of consumer demand; despite the slight disruption caused by the General Election, the Euros and Wimbledon last month, demand levels on Auto Trader rose 3.5% YoY.

This was reflected in the circa 80.9 million visits to Auto Trader (up 2.1% YoY and 19% on July 2022), and the estimated 1% rise in used car transactions.

What’s more, the imbalance of supply and demand dynamics is also helping to fuel the rapid pace in which used cars are currently selling: at 29 days, cars left forecourts in July a day faster than in June, and four days quicker than in July 2023.

Supply squeeze on middle of the market

Further highlighting the nuance, while supply in some segments remains strong, particularly at opposing ends of the market, overall levels are being hampered by the squeeze on the middle of the market.

Stock for cars less than a year old rose 37% YoY, and 13% for those aged over 10 years old.

However, as the circa three million ‘missed’ sales during the pandemic continues to flow through the market, supply of one-to-five-year-old stock fell -18.5% YoY in July.

It's this softening in supply, coupled with rising levels of consumer demand, which is creating very favourable market dynamics, and helping to stabilise prices, particularly within middle-aged cohorts.

Auto Trader’s Market Health metric, which assesses potential market profitability, was up 30% year-on-year for one-to-three-year-old cars, and a whopping 33% for those aged three-to-five years.

This imbalance is also helping to accelerate the speed in which these cars are selling, with three-to-five-year-old cars leaving forecourts in just 27 days.

Conversely, due to supply outpacing demand, cars aged below 12 months and those aged 10-15-years took longer to sell, lingering on forecourts for 32 and 34 days respectively.

Despite these favourable market conditions, however, many retailers are choosing to price very high-demand stock below their market value.

Collectively, circa 8,900 retailers are currently advertising around 63,000 cars with a high Retail Rating score below their market average.

Auto Trader said this behaviour is "eroding retailers’ margins, potentially costing around £31 million".

Richard Walker, Auto Trader’s data & insights director, said: “We continue to see a complex and nuanced used car market, but the underlying fundamentals remain robust, which means cars are selling quickly and more are being sold.

"And with demand continuing to outpace supply, prices should continue to stabilise over the coming months, slowly rising in line with seasonal norms."

Walker said there's no sign of a drop in either consumer demand or confidence, which will be further boosted by the Bankf of England's cut in interest rates that will build on the economic benefits of increased political stability.

He added: "There’s room for optimism then as we look ahead and it's why we’re confident in predicting a 5% rise in transactions by the end of the year.

"As always, a combination of insight and instinct will be key to maximising the opportunities.”

Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA), concluded: “Despite some ongoing challenges, notably the supply squeeze, Auto Trader's data shows that the health of the used car market remains solid, with promising signs for a strong second half of the year.

"Prices are stable, reflecting a balanced market where demand continues to effectively match supply.

"Consumer demand is strong, and cars are selling quickly, which suggests buyers are eager and willing to make purchases."

Top 10 used car price growth (all fuel types) | July 2024 vs July 2023 like-for-like

Top 10 used car price contraction (all fuel types) | July 2024 vs July 2023 like-for-like