Used car supply shortage drives prices higher still

Predictions that used car values would stabilise this summer have proved premature as research by CAP reveals ongoing trade price increases.

August edition of Black Book, the independent benchmark guide to used car trade values, reveals that used car supply shortages are continuing to push prices higher.

In an unprecedented market, dealers are still desperate for stock despite a gradual slowdown in retail demand.

CAP’s measure of auction conversion rates for ex-fleet cars revealed July to be the 3rd strongest month this year, with 87.5% of cars selling first time

Although the strengthening of used car values is good news for the leasing and finance sectors, which face considerable risk around the depreciation of assets, for retail motor dealers the current market dynamic presents major challenges.

Because fewer cars are being produced and registered, the usual supply of ex-manufacturer and ‘short cycle’ cars – such as those sold into daily rental operations – is significantly down. This means a considerably reduced supply of vehicles up to one year old. And because consumers are buying fewer new cars, dealers are unable to rely on part-exchange cars to fill the forecourt.

This means that franchise dealers in particular have been forced to join the general clamour for stock in the open market, adding to the upward pressure on prices. But because consumers are still resistant to higher retail values in the current economic climate, the inevitable result is squeezed margins.

CAP’s research team believes there is no early end in sight to supply constraints and expect further reductions in the number of cars returning to the used market over the coming weeks.

The impact of all these factors is a further average 1.5% increase in average used car values reported in the August edition of Black Book.

Despite the poor summer weather of recent weeks, among the stars of the market are convertibles and coupe/cabriolets which have enjoyed value increases for August of 2.3% and 3.5% respectively, at 3yrs/60,000 miles. MPVs are also performing especially strongly.

The smallest cars continue to under-perform the market, in line with the past few months. This is driven by the fact that superminis and city cars do not have the same ground to recover as the rest of the market, following their strong performance during last year’s unprecedented downturn.