Tough times to come for used car market as price increases soften

Auto Trader has urged car retailers not to “jump to rash conclusions about the health of the market” after car price rises eased in May with the prospect of tough times ahead for car buying consumers.

The online marketing platform’s director of data and insight, Richard Walker, insisted that a gradual return to “normal” trading remained on the cards after the COVID-19 pandemic and manufacturing issues left the market short of over two million used cars – ensuring demand would remain high.

But, despite rising for a 26th consecutive month in May, the Auto Trader Retail Price Index showed year-on-year like for like growth down 3.8ppts month-on-month to 28.4%.

The softening market outlook came as Cox Automotive insight and strategy director, Phillip Nothard, told AM: “We’re still seeing year-on-year increases in used car values, but dig down beyond the headline figures and certain models are suffering some quite significant hits.

“There are a lot of headwinds approaching. I hope retailers are prepared and in resilient shape after a period of buoyant demand and record margins.”

According to Auto Trader’s data, many cars continue to grow significantly in value, albeit many of them at the lower end of the price spectrum.

All 10 of the top-ranked models in its price movement data rose by over 45% year-on-year last month, with the Suzuki SX4 topping the table with a rise of 79.8%.

Just five vehicles suffered year-on-year depreciation, its data suggested. They were the: Cupra Formentor, down 0.7% to £34,513; Land Rover Discovery, down 1.2% to £8,069; BMW 8 Series, down 2.2% to £55,653; BMW 8 Series Gran Coupe, down 5.7% to £58,919; and Mini Roadster, down 7.2% to £8,152.

Cost of Living crisis

The RAC reported today (June 9) that the average cost of a tank of petrol had reached £100 this week, after a record 2p per litre overnight price rise was levied at the forecourts.

It is the latest hit for household incomes in a cost-of-living crisis which has seen inflation approach double figures – reaching a 40-year high – with home energy costs set to soar with a further lifting of price caps in October.

Auto Trader said that its online visitor data suggested that demand from car buyers remains buoyant as Walker called for a calm approach to tougher economic conditions.

Advert views on the marketplace are 12.6% down on the record, post-COVID levels but remain up 12.4% on May 2019.

Walker said: “It is important not to jump to rash conclusions about the health of the market, despite the softening in used car price growth during May.

“If we compare it with a boom in car-buying after the end of the third lockdown, it is unsurprising that the market might seem weaker.

“But judged by site visits to Auto Trader which are currently averaging 63 million a month, demand is still solid and looks likely to support pricing for some time to come.”

Walker added: “This is obviously a tough time for consumers and there are further economic hardships to come. But the supply chain issues triggered by COVID and its aftermath mean that there are around two million fewer cars in the market than would have typically been the case – and the problem has been worsened by the crisis in Ukraine.

“This is a market which is only going to gradually return to normal.”