In recent years, a combination of factors including the COVID-19 pandemic, rocketing fuel and energy prices and high inflation have led to a cost of living crisis in which real disposable incomes have dropped significantly. Despite the fact that British businesses and individuals are feeling the pinch, the used car market has experienced significant growth – but why are used car sales so high, even with the cost of living crisis in full swing?
The used car market demand – As a result of global supply chain issues hindering the production of new cars (especially a shortage of microchips and batteries), many prospective buyers have turned to the used vehicle market to fill the void. Despite the fact that the total value of the used car market has finally started to plateau and drop in 2022 (decreasing by an average of 2.1 across March and April and 0.9 in June), this is the first significant fall in more than 2 years. As the supply chain normalises and inflation eases, it’s likely that the demand for used vehicles will drop again in favour of new cars being bought straight off the line – for now, the demand for used cars remains relatively high, especially when it comes to battery electric vehicles and hybrids (these markets have experienced respective growth rates of 44.1% in a year and 2.5% in a quarter). Let’s take a closer look at some factors that have contributed to the initial spike in used car demand:
– New car production is stalling – One key reason why more consumers have been deciding to buy more used or second-hand cars is the fact that there is a significant shortage of new vehicles being produced. There were only 1.6 million new registrations in the UK during 2021, which represents a 30% decrease from before the COVID-19 pandemic.
– Forced turnover – Because many car owners in the UK make use of personal contract purchase (PCP) financing(which requires low monthly payments and a final lump sum), thousands of vehicles have been part-returned due to consumers’ inability to pay off the bill. The lack of new vehicles on the market has led to customers looking for used cars in the case of forced turnover.
– Shortages in the used car market – As a result of the market becoming quickly congested, the supply of used cars has started to fall in line with rising demand. The combination of high demand and low stock has led to a significant shortage in both new and used markets.
– Fewer deals and discounts – Whereas a well-stocked supplier may make use of deals, discounts and bonuses to shift more units, we’ve seen a reduction of these as the market has been squeezed. This means that you may have to pay more at face value to pick up a used car from a dealer or private seller.