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Falling used car values are good news for consumers | The Car Expert

Over the last six months, we’ve seen used car values starting to fall noticeably after being unusually high for almost four years – ever since Covid-19 entered our lives.

So what’s going, what’s likely to happen over the course of this year and what does it mean for car buyers? Well, the headline news is that used car prices are likely to keep falling all year long, with used EV prices falling further and faster than petrol cars, particularly in the second half of the year.

The used car market is inevitably guided what’s happening in new car sales, and there are major happenings currently going on that are combining to drive down used car prices. To properly understand it, we need to compare what’s going on at the moment (2023/24) with the ‘pandemic years’ (2020 to 2022) and ‘pre-pandemic years’ (2017 to 2019).

Let’s jump in.

The new car market has split in two

If you read the industry propaganda, new car sales are great. As of February 2024, fleet sales have seen 19 consecutive months of growth and are spinning along at levels greater than before the pandemic. Yay!

For private new car buyers, however, the results have not been anywhere near as exciting. Things were inevitably very up and down over the ‘pandemic years’ (2020 to 2022), while 2023 initially saw growth, but then things flattened out over summer and started turning downwards over the second half of the year.

We’re only two months into 2023 at time of writing, but private new car sales are down 11% on the same point last year, and about 25% down on pre-pandemic (2017 to 2019) numbers.

So we’re seeing a two-speed new car market, with fleets powering along and consumers stuck in the slow lane. There are reasons for this.

Pandemic revisited

Sorry if that heading gives you Covid-related flashbacks. I’ll be brief…

Fleet sales were hammered hard during the pandemic years, even more so than private sales. Lockdowns meant that car manufacturers couldn’t build cars and car dealers couldn’t sell cars. Not that there were many fleet customers at that time anyway, as big companies around the world were busy trying to work out how to run their businesses in a work-from-home environment. Even when lockdowns were lifted, things remained in flux for months afterwards.

The knock-on effect of lockdowns around the globe was severe parts shortages. Regardless of where a car is built, it uses components and materials from all over the world. As a result of disjointed shutdowns and re-starts, car manufacturers struggled to build enough cars for a year or more after lockdowns ended. With limited supply, they prioritised selling to private customers – because you and I pay more for our cars than fleets, who typically get massive discounts because they buy in bulk.

That suited the fleets just fine at the time anyway, since many companies were also holding off on any unnecessary spending during all the pandemic upheaval. One of those savings usually meant holding onto their vehicles for longer instead of replacing them.

A shortage of new cars, and vastly reduced fleet turnover, meant far fewer used cars coming onto the market during the pandemic years. This pushed used car prices up significantly, with some used cars even going up in value year-on-year instead of down.

For used car buyers looking for a car during the pandemic years, it normally meant paying much more money than expected, or buying an older/higher-mileage/less-prestigiously badged vehicle than they may have intended.

The boom times return

It’s only been in the last year that large fleets have really returned to normal operations. And that has meant a push to urgently replace all the cars that have been running well past their usual sell-by dates, coinciding nicely with car manufacturers finally returning to normal production levels.

As a result, fleet sales have been turbocharged over the last year and a half. That’s meant a vastly increased number of used cars coming onto the market, which has finally started pushing prices back down again.

And with fewer private customers currently wandering into dealerships, there are more new car discounts on offer. That also inevitably pushes used car prices down. So used cars are now cheaper than they’ve been for at least a couple of years.

What’s in store for the rest of 2024?

The current boom in fleet sales is likely to continue for at least the next few months, although it’s likely to start slowing down eventually. Fleets tend to turn their cars over more regularly than private owners, so 19 months of consecutive fleet growth is already seeing more used cars finding their way to the market, increasing supply and pushing prices down.

Private new car sales are also likely to remain sluggish for the foreseeable future. Inflation is now falling again, but interest rates look set to remain at or close to current levels for the rest of the year, so we’re unlikely to see customers stampeding back into showrooms any time soon.

There’s also the spectre of a general election in the not-too-distant future. Elections and referendums are like kryptonite to car showrooms, so dealership managers are going to be sweating on their targets if Sunak calls an election any time around the next big new car sales month of September.

Another minor concern will be the Olympic Games in Paris – the first Olympics in a UK-friendly time zone since the London games back in 2012. Prime-time scheduling for popular events could mean a quiet fortnight for car dealers this summer as millions of people spend their weekends on the sofa cheering on Team GB instead of going car shopping. It might be a good time to drop into a dealership to hunt for a bargain…

All of this suggests that there will be more cars hitting used car forecourts throughout 2024, and prices will continue falling all year long as well.

What about electric cars?

Electric car resale values have been in the news a lot lately, largely thanks to anti-EV elements of the media doing their best to drive a certain narrative.

Until about 2020, EVs only made up a very small proportion of the new car market – and the cars were generally very expensive compared to petrol or diesel equivalents. That meant that used car values were also high, with only a small number of rather expensive used cars for sale. This situation has changed sharply over the last four years.

As with fossil-fuel cars, the used EV market inevitably follows the new car market. New EV sales really took off in 2020, and are now firmly established in the marketplace. And that has led to a rapidly growing number of EVs arriving onto the used car market in 2023. As to be expected, more supply forces prices down. New EV prices are also falling as the market scales up and competition increases. So EV used car values have fallen quite quickly from very high to pretty much in line with petrol cars.

There are now more than a million EVs on UK roads, but more than half of those cars are less than two years old and more than three-quarters are less than three years old. That means that most of those cars haven’t hit the used car market yet, so we still haven’t seen the full impact of rapid new EV growth into the used car market. The number of used EVs for customers to choose from is set to grow significantly over the course of this year, helping to push prices down further.

There’s also the added complication of the government’s Zero Emissions Vehicle Mandate. This requires at least 22% of all new car sales to be electric vehicles. With two months of the year down, we’re currently sitting at 16%, so there’s certainly work to be done. That means more discounting for private buyers and more encouragement for fleets to turn over their cars more quickly to take more new EVs. Which, to reprise a familiar theme, will mean used EV prices will continue to fall.

However, the reverse could happen for used petrol car values. Car manufacturers who fail to hit the 22% EV mandate face enormous fines, to the extent that some big-name car brands may choose to stop taking orders for petrol, diesel and hybrid cars before the end of the year, forcing customers to wait until next year. This will put upwards pressure on used car demand and prices for those models later this year.

Does this mean it’s a bad time to sell your car?

Falling prices are good news if you’re looking to buy a used car in 2024, but not as good if you’re selling one. If you have a car that you’re thinking about selling, it’s probably worth doing it sooner rather than later.

Used car values have certainly fallen from their high points of the pandemic years, but right now they’re mostly still above average. Give it another few months, however, and they’ll almost certainly have fallen further.

Getting in ahead of the summer holidays, Olympic Games and general election could be a good shout if you’re selling a car.

Summary

All of the factors above look like combining to keep driving used car prices down in all segments over the course of this year, with more cars to choose from across almost all makes and models.

This is good news if you’re looking to buy a used car in 2024, but not as good if you have a car that you’re looking to sell. Now’s probably the time to sell a car, rather than waiting until later in the year.

The new car battleground will be in the EV marketplace, with knock-on effects for used EV values and pricing. There’ll be some very keen new car deals likely to be on offer from some (but not all) brands for their EV models. Combined with growing numbers of ex-fleet cars hitting the used car market for the first time, used EV prices are likely to keep falling all year long.

If you’re looking at a new or near-new petrol car, falling prices could level out for some models towards the end of the year. If certain car companies are forced to stop sales of new petrol cars in order to hit their EV targets, it will push used prices up for those cars. However, we don’t yet know which brands and which models may be affected if this happens.




This article was originally published by a www.thecarexpert.co.uk . Read the Original article here. .

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