June has seen another sharp rise in used car values, on the back of 2 consecutive months of the value of your car likely to have been appreciating. We ask will this go on or is this a temporary bubble?
Why is this happening?
Most of the appreciation of used cars can be put down to the supply chain restrictions the industry is experiencing, in part due to the microchip shortage. There is a broader issue with new car supply linked to ongoing COVID-19 restrictions, from microchips, to factories operating under capacity, to shipping disruptions.
Most manufacturers suggest this will continue to be a problem during 2021. There is, therefore, an argument that suggests that used-car values will continue to rise. However, we consider this unlikely for three main reasons:
- Used car values do tend to depreciate. The underlying logic of the used car market is that cars lose some of their value as drivers use them, as the warranty runs down and as the age of the car increases. Ultimately cars are a depreciating asset and at some point the market will correct to this prevailing logic.
- Some of the current bubble is fuelled by a short term lack of stock in the used car arena. Many used car traders let their stock drop down as lockdowns continued and now are experiencing a surge in demand, meaning they are themselves experiencing a surge in supply chain demand for their forecourt.
- The temporary impact of the Webuyanycar bubble. The most well-known brand of car buying websites almost entirely ceased operations during 2020 and early 2021. Owned by the auction company BCA, during May and early June 2021 they have been on a buying spree to refill auction lots. This is likely to be linked to point 2 above, and we predict this is likely to tail off during the summer of 2021.
Interestingly, according to the team at cap hpi, in April new vehicle registrations were almost at pre-covid levels, as was February, March was just about 55%.
What does this all mean for you?
Simplistically, if you have a car outside your house you don’t need, we’d advise you look at selling it this month. As many of us use PCP agreements, and there will be the complication of finance settlements etc., we acknowledge it isn’t likely to be as simple as that.
However, with many of those agreements having been contracted at far higher mileage than has actually been used given the pandemic, any PCP agreement ending by December 2022 is worth reviewing your options on. The challenge then is sourcing a new car in what is a difficult market for supply, but there are a number of options around short term leases, and indeed there are many brands which have pockets of vehicles available this summer.