What will happen to used car prices after COVID-19?

What will happen to used car prices after COVID-19?

If this isn’t the question on every petrolhead’s lips right now, then why is there a 230+ page thread about it on Pistonheads…..? With rumours of car prices about to go into freefall, no doubt fuelled by the sale of an 18-plate McLaren 720S for its half original price at auction, we have been asked by many customers whether this is a good time to buy a car, so we’ll try and put some context behind it.

The story so far

Car retailers have been locked down since Boris’s big announcement on the 24th March – that’s nearly two months, but what has been going on in car showrooms since?

Let’s concentrate on the type of cars that Magnitude finances – prestige, performance and supercars with values over £25,000 – and the cars that people over on Pistonheads are talking about. Will Coronavirus hit used car prices?

One of the things that becomes immediately apparent if you take a look at the forum thread is that everyone has a different opinion, and much of it is fuelled by assumptions and misinformation – and to be perfectly honest, we’re going to have to make a few of the former here….

Is anybody buying cars?

Only 4,321 new cars were registered in the UK in April 2020 – a 97.3% drop from the previous year (161,064 registrations) and a year to date drop of 43.4%.

Data for used car sales isn’t available yet, so one might assume that that the story is the same, particularly as there has been some confusion over whether car dealers were even allowed to sell cars. The Department for Business, Energy & Industrial Strategy (BEIS)finally confirmed that they were in a statement to Car Dealer Magazine on 22nd April.

They (car dealers) are all able to continue to sell cars remotely and deliver cars, as long as they follow our clear guidance from Public Health England to protect both employees who cannot work from home and their customers.

BEIS spokesperson

We are aware that a limited number of our customers had been buying cars prior to that date, and that this number increased once the regulations had been clarified. Speaking with our dealer partners, surprisingly some have been busy, with enquiry levels currently surviving the Coronavirus epidemic unscathed and sales dropping by between 50-70%. Some will be worse hit. Considering the limitations imposed on dealers, we have found this surprising and it will be interesting to see what happens to business volumes as restrictions are relaxed further. The phased introduction of Click & Collect services and showrooms re-opening, potentially in June with social distancing measures in place, will no doubt make a significant difference to dealers’ ability to close deals, if not to consumer confidence overall.

AutoTrader research indicates that demand hasn’t been dented too much with 14% of potential buyers polled saying they still wish to buy now, 58% saying they were still buying but waiting till later and just 3% were no longer buying.

So, demand is still there and cars are still selling – it just isn’t possible to gauge exactly how much and how many. From a car finance perspective, our web traffic and enquiries have recently recovered to pre-Corona levels but only time will tell if this bounce-back is sustained and ultimately whether buyers transact.

What has happened to car prices so far?

Not much, to be honest. Retailers have resisted the temptation to slash prices, presumably because there is no point in dropping prices in a frozen market, and AutoTrader reports that retailers are standing firm with very little panic pricing. Both AutoTrader and Motors have reported that in some localities prices have actually risen.

Retailers (are) holding their nerve on prices…

cap hpi

But how long will dealers hold their nerve in the face of falling demand and mounting COVID-related costs?

Credit: AutoTrader

What will affect car values

Price and value are of course two entirely different things and while prices may remain the same, that doesn’t mean values will.

In the face of recession, future demand is likely to be diminished but so will supply. Part exchanges are already less plentiful due to the lack of new registrations, throttling the supply of new stock to used car forecourts.

In April 2020, just 27 Porsche were registered in the UK compared to 1,717 in April 2019

Data provided by SMMT

Rental and leasing companies are looking less likely to de-fleet, choosing instead to keep those cars on the road as they already have in the US (Source: cap hpi). This may soften any blow to values in the prestige and performance sector, and indeed some market observers and even consumers believe prices may rise.

It is worth noting that used cars over £25,000 represent just a fraction of the wider market, with just 17% of used cars on AutoTrader priced at £25,000 or more. The dynamics of this market are also very different to the volume sector.

CAP HPI reveals it has started moving values of older cars once again

Transport distancing

The way we travel during and after Coronavirus will change – and it is likely more people will want to avoid public transport, increasing demand for used cars.

AutoTrader recently ran a survey asking the British public how they think they’ll be travelling post-Coronavirus, and 48% of those asked said they may be less likely to use public transport.

74% of the 1,067 people they asked said they’re more concerned about having personal space following COVID-19, and over half (56%) of UK driving licence holders surveyed (1,059) who currently don’t own a vehicle said COVID-19 has made them consider purchasing a car when it’s safe to do so.

Combine this with the drivers who will need to change their car at the end of their PCP or jump on their bike, and it is clear that whatever the economic climate, there will be a demand for personal transport.

Is this a good time to buy a car?

Read between the lines, and this is the question that people are really asking.

Lenders are becoming more conservative with residual values, who they lend to and how much – and that position will be continuously reviewed. We have seen future residual values drop by 10-15% for some lenders and while these may be driven by prudence rather than confidence, this will to some extent affect car pricing in the near future and monthly payments right now for products such as PCP and Hire Purchase with a balloon.

Dealers should be more receptive than ever to doing a deal right now, so this could very well be the right time to make that dream purchase. Consider also that if the market falls, so will your part exchange – if you have one.

Despite the dynamics of the used car market looking more uncertain than they ever have, if you have a car to trade in this might just be the sweet spot of plentiful stock combined with a buyers market.

If you have cash burning a hole in your pocket and no part exchange, then we’ll let you roll the dice, but don’t let your dream car pass you by with an unrealistic offer – we can guarantee you that the best cars are still quickly finding homes at pre-Corona prices.