Used car prices are turning to good as demand exceeds supply

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

The actual act of leaving the dealer’s office wipes out a small amount of cash from the value of the car, starting with an unstoppable slide that will last for decades or later when it is thrown away as junk.

No more.

Used car prices have been rising steadily since the epidemic due to supply imbalances due to a lack of chips due to the coronavirus crisis.

The biggest increase ever recorded this year was 1% in February 2018. They rose 6.7 percent in May, according to the Cap Hpi data group, which has been tracking live prices since 2012.

“Usually cars go down in price, they don’t go up in price,” said Deren Martin, head of data analysis. “But right now cars are investing.”

Rising prices are being felt in real estate in the UK, Germany and the US, fearing it could increase inflationary pressures in other parts of the economy.

Prices for used cars in Germany reached an all-time high in April, according to AutoScout24, the leading sales site. The average price for that month was 22,424 euros, which is more than 800 euros more expensive than at the beginning of 2021.

In April 2020, the average price was 20,858 euros, an increase of about 200 euros per year.

“In the past, due to the season, the price curve was usually somewhat lower in the early spring and summer months,” said the company, which has about 2 million cars on its website.

The reason for the turnover “will probably be mainly the limited supply,” he added, “but the increase in the popularity of luxury cars, classic cars, leads to a relatively sharp rise in average prices.”

In the UK, the one-year-old Audi A3 is now worth 00 1,300 more than a year ago, up 7%, while the Mazda MX5 sports car is up 50%.

“I’ve been doing this for 28 years, and only once have I seen it happen twice,” said Daksh Gupta, chief executive of Marshall Motors UK.

Small multi-layer charcoal shoe supply և demand for used cars by body type.  % changes from year to year in the UK market

The next time was after the 2008 financial downturn, when prices rose in 2009 as demand recovered faster than industry could hold back.

This time, two main factors play a role.

Demand for vehicles has increased since the end of last year, as customers are gaining momentum while working from home, canceling foreign vacations.

Sports cars and convertibles have been particularly strong, but there has been an increase in all categories, with many drivers still wanting to avoid public transport.

A survey conducted by Deutsche Automobil Treuhand in Germany, which collects data on behalf of industry, found that one-third of used car buyers buy a second vehicle to help other family members avoid public transport.

“This is the highest level of demand for used cars I have ever seen,” said Robert Forrester, CEO of Vertu Motors.

Auto Trader visits jump as consumers search for second-hand cars © Angus Mordant / Bloomberg

The online car market, which specializes in used models, Auto Trader visits are 39% higher than in 2019, before the epidemic hit.

“Everyone thought that the accumulated demand would disappear, but it remained,” said Ian Plummer, Auto Trader’s Commercial Director.

But the real pressure comes from supply.

The shortage of chips has been exacerbated by a fire that broke out at a factory in the state of Rennesas, Aponia, Texas, one of the world’s leading semiconductor manufacturers.

Millions of cars are short for industry, with little hope of making up for lost volume by next year.

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

Chart showing that US used car prices are rising year-on-year, indexes are rising again

Dealers also make more money.

“If they have enough cars, dealers are falling for sweets right now,” said Mark Laver, CEO of Cumbria. “Demand is bonker.”

But eventually the supply of new cars will end.

“Buyers of new cars can think of a one- to two-year-old vehicle, but any older one’s mocking it,” said Ivan Drury, head of used cars at Edmunds USA.

The supply-demand imbalance will also worsen before it improves. Only the solution of the chip crisis ը return to normal production will lead to a surge.

“When did it end?” said Auto Trader’s Plummer. “It all depends on the balance of supply and demand, how curious we are about cars as we are now. It is clear that it is months, but there are years, we still can not say. “

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