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Retailers urged to ‘follow the data’, as headline price movements mask nuanced used car market

posted on 12/09/2023
Retailers urged to ‘follow the data’, as headline price movements mask nuanced used car market

According to the Auto Trader Retail Price Index, which is based on circa 800,000 daily pricing observations, the average price of a used car was £17,732 in August, marking a 1.1% increase on a year-on-year (YoY) and like-for-like basis. The Index reveals the current volatility and nuance of the used car market, with recent headlines masking the underlying health of the used car market, and the pockets of demand and profit opportunities available.

Although the headline increase is softening on the previous record rates observed over the last 41 consecutive months, it is to be expected as the market continues to overlap three years of abnormally strong levels of growth; prices in August 2022 and 2021 were up 15.6% YoY and 17.2% respectively. By applying a longer-term view, it’s evident just how strong used car prices remain and how fast they have grown in a short period; last month the average price of a used car was up 36.9% on August 2020, and a whopping 43.3% on the same period in 2019.

Prices have also softened month-on-month (MoM), falling -0.8% between July and August. Although slightly larger than normal, contraction in August is consistent with typical seasonal patterns (e.g. August 2019 recorded a -0.4% MoM decline).

Younger cars supressing headline growth.
Looking at the data on a more granular level highlights the current nuance of the market, as well as the factors contributing to the gradual slowing in headline YoY and MoM prices. Indeed, a quick look beneath the bonnet reveals the overall figures are currently being held back by younger age cohorts, with the average price of used cars aged up to three-years-old (£29,699) contracting -3.5% YoY and -0.9% MoM in August.

Rather than faltering demand, however, the primary cause of price softening among younger vehicles is due to the recent easing of supply constraints in the market as new car sales have started to rise in both retail and fleet channels freeing up more supply of recent used vehicles. In fact, levels of consumer demand[1] for used cars aged less than three-years old rose 15.1% YoY last month, whilst supply was up an equally robust 14.4%, marking the second highest rate recorded for this age group. Supply of ‘nearly new’ cars (those aged below 12 months) was up 51% over the same period, however, the volume of cars within this segment remains circa 50% below pre-pandemic levels.

Prices of these younger cohorts are being further compounded by the current surge in second-hand electric vehicles (EV) entering the market; the volume of EVs aged up to three-years-old advertised on Auto Trader increased 97.4% YoY last month. And with the average price of a used EV (£31,618[2]) falling -22.6% YoY in August (due to supply continuing to outpace the otherwise very strong levels of consumer demand for second-hand electric cars, up 68.6% YoY), not only are the average prices of younger age cohorts being supressed, so too is the overall market. Highting the influence of these factors on the headline figures, the average price of petrol and diesel cars aged over three-years-old, which represents a far greater proportion of the market, increased 4.9% YoY last month.

No imminent crash in sight as underlying demand continues to outpace supply.
Although far from the same level seen in younger cars, supply is slowly improving across most age cohorts, with overall levels on Auto Trader increasing 1.2% YoY, marking the first positive total market growth of supply since November 2022. However, supply volumes remain constrained by the circa 3 million fewer new cars that weren’t built during the last three COVID and semi-conductor affected years, and importantly for future retail values, continue to be outpaced by robust levels of consumer appetite for used cars. In fact, based on Auto Trader’s Market Insight tool, which tracks levels of consumer engagement on its platform, demand was up 8.7% YoY last month across the market.

A further indicator of the solid levels of consumer demand in the market is the speed in which used cars are leaving retailers’ forecourts. The latest data shows that used cars took an average of just 29 days to sell in August: two days faster than in July, and a day faster than August last year. Electric vehicles are selling even faster than the market average, taking just 28 days; two days fast than in July, and a day faster than their petrol-powered counterparts. 

Auto Trader’s Director of Data and Insight, Richard Walker, said: “We’ve been seeing growing levels of volatility in the market over recent months as levels of COVID related new car supply gradually improves. However, headline figures can be deceiving, and as ever the devil is in the detail, because contrary to what it may suggest, the market remains full of pockets of profit potential. Our figures should serve as a clarion call for retailers: in such a nuanced market it’s vital to follow the data, and not just the headlines or market averages to inform pricing and stocking strategies.

“As supply levels of younger stock improves, particularly of electric vehicles, it’s likely we’ll continue to see a softening of price growth over the coming months. However, with no sign of a dramatic change in consumer appetites, there’s certainly no indication of prices falling off a figurative cliff edgeThere’re still very strong pricing pockets available, including with used EVs – the demand is there, so if retailers use data to buy them and sell them at the right price, there’s plenty of profit potential available.

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