Used car price drop not caused by second lockdown, says Cap HPI

Used car values have been dropping after a summer of strong growth, but the change in prices is not the result of the current lockdown.

That’s the view of Cap HPI, which says the price drops are part of a seasonal readjustment.

Demand for used vehicles was significant following the first lockdown, but this is now declining and dealers are now trying to avoid having high-priced stock sitting on forecourts.

Cap HPI has identified a decline in trade prices by 2.1% in October and by more than 2% so far in November. This equates to around £450 in total on a typical three-year-old car.

Derren Martin, head of Valuations at Cap HPI, said: “With pent-up demand from the first UK lockdown and consumers buying to avoid public transport both now declining, trade buyers are wary of paying previous high prices for cars that may now sit on their forecourts for longer and will potentially need to be reduced. This has led to a decline in trade prices across the board.

“It is important to remember that, when comparing the same type of car at the same age and mileage point today to a year ago, prices are some 5% ahead of where they were, when normally we expect a decline, as models deflate in price whilst moving through their lifecycle. This upward movement that the market has experienced is not unprecedented, but history shows us that it is generally unsustainable.”

While trade values are seeing a decline, retail values remain relatively steady for the moment. Cap HPI says retailers have generally held their nerve over recent weeks, adjusting advertised values only by small amounts when necessary, this has not been the case in the wholesale, or trade market.

The volumes of cars being sold in the trade are lower than prior to the latest lockdown, they are currently only down by around 15%. However, the valuation business warns that dealers need to be on the guard; with a drop in trade prices now, this could eventually filter through to retail prices.

Martin added: “With many smaller models of cars around 10% higher in value than they were a year ago, some realignment was always likely and the final quarter of the year is generally the time when values drop. We see no cause for alarm, and many consumers are still buying used cars through Click & Collect. Even with this realignment, used car prices are still higher than even the most optimistic would have predicted a year and certainly six months ago. It is essential for buyers and sellers alike to track trade prices in real-time at times like this.”