Used car prices are on the rise as demand exceeds supply

In normal times, car values ​​are one-way roads.

The act of leaving the concession eliminates a chunk of money in the value of the vehicle, which starts an unstoppable slip, which will last a decade or so, until they are left as garbage as worthless scrap.

No more.

In the hardest months following the pandemic, used car prices have risen steadily due to an imbalance in supply and demand due to the coronavirus crisis and chip shortages.

Prior to this year, the largest increase ever recorded was 1 percent in February 2018. In May, they rose 6.7 percent, according to the Cap Hpi data group, which has been tracking direct prices since 2012.

“Usually cars are depreciated, they don’t increase in value,” said Derren Martin, head of valuation for the data group. “But right now cars are an investment.”

It is sensing rising prices in the UK, Germany and the US for fear it could add to inflationary pressures elsewhere in the economy.

In Germany, used car prices were the highest ever in April, according to AutoScout24, the main sales site. The average price in that month was € 22,424, more expensive than € 800 at the beginning of 2021.

In April 2020, the average price was € 20,858, up from around € 200 a year.

“In the past, due to the season, the price curve typically dropped slightly in the early spring and summer months,” said the company, which has about 2 million cars on its site.

The reason for the change is “it is likely that supply will be scarce,” he added, “but the growing popularity of luxury cars and classic cars raises the average prices quite significantly.”

In the UK, a one-year-old Audi A3 is now worth £ 1,300 more than its equivalent a year ago, up 7%, and the Mazda MX5 sports car has risen by 50%.

“I’ve been doing this for 28 years, and I’ve only seen that twice,” said Daksh Gupta, general manager of Marshall Motors UK.

The other period was after the financial crash of 2008, when prices rose in 2009, as the industry recovered faster than it could have maintained.

This time, there are two main factors at play.

Demand for vehicles has risen since the end of last year, as money from working from home and canceling foreign holidays is splashed on by consumers.

Sports cars and convertibles have been particularly powerful, but there has been a rise in all categories, and many drivers are still keen to avoid public transportation.

In a survey conducted by Deutsche Automobil Treuhand in Germany, which collects data on behalf of industry organizations, a third of used car buyers were buying a second vehicle to avoid public transportation to others in their home.

“This is the highest used car demand I’ve ever seen,” said Robert Forrester, CEO of Vertu Motors.

Visits to Auto Trader, the online car market that specializes in used models, are 39% higher than before the 2019 pandemic.

“Everyone thought the demand that was going to fall was thought out, but it has been maintained,” said Ian Plummer, commercial director of Auto Trader.

But the real tightness comes from the supply.

Pandemic chip shortages have exacerbated Texas storms and fires at a Japanese Renesas plant, one of the world’s leading semiconductor manufacturers.

This has left the industry with millions of short vehicles, with little hope of making up for lost volumes by next year.

At the same time, stocks are low because few drivers market new models and rental car groups do not unload the engines.

Concessions are also making more money.

“If they have enough cars, the sellers are in for a good time right now,” said Cambria CEO Mark Lavery. “Demand is bonkers.”

But eventually the supply of new cars will run out.

“Buyers of new cars can spot a vehicle from one to two years old, but they are older and make fun of them,” said Ivan Drury, head of used vehicles at the U.S. data group Edmunds.

The imbalance of supply and demand will also get worse before it gets better. Only the chip crisis solution and the return to normal production levels will stop it.

“When did this end?” said Auto Trader Plummer. “It all depends on the balance of supply and demand, and how long we keep being as enthusiastic about cars as we are now. It’s clear that it’s been months, but whether it’s been years or not, we still can’t say.”