Changing supply patterns, stronger new-car sales, and shifting consumer behaviour are reshaping the used car market, according to Chris Plumb, head of current car valuations at Solera Cap HPI.
Year-to-date sold volume into CAP is around 5% higher compared to the same period last year, but the increase is far from evenly spread. Supply has grown across vehicles aged up to five years, with the strongest rise coming from cars between two and three years old. By contrast, the number of four- to seven-year-old vehicles has fallen, while cars aged 10 years and over are becoming increasingly common.
The increase in younger vehicles has largely been matched by demand. These cars typically require less preparation before reaching the forecourt, making them attractive to retailers and helping them move quickly through the market.
The shortage of four- to seven-year-old vehicles is no surprise. It reflects the sharp fall in new car registrations during the pandemic, with those missing vehicles now creating a natural gap as they reach the used market.
Older PXs put pressure on wholesale
The biggest shift is taking place at the older end of the market. Private new car registrations have risen by around 12% this year, generating a greater volume of part exchanges. Franchised retailers are keeping many of the best examples for their own forecourts, but older, higher mileage and poorer-condition vehicles are increasingly finding their way into wholesale channels.
Retailers have become much more selective about the stock they buy. Rising labour, repair, and refurbishment costs mean there is less appetite for vehicles that require significant preparation before they can be retailed.
That caution is particularly evident among independent dealers. Many are reporting softer consumer demand than earlier in the year and are replenishing stock more carefully. As these businesses have traditionally been the main buyers of older vehicles, reduced purchasing activity and lower interest is having a noticeable effect on the wholesale market.
New car finance offers alter behaviour
Consumer behaviour is also changing. Whilst some motorists are keeping their cars longer and choosing to repair rather than replace them, others are taking advantage of highly competitive new car finance offers, with low deposits and attractive monthly payments encouraging buyers who may previously have chosen an older used vehicle to buy new instead.
The result is a growing volume of older part-exchange vehicles entering disposal channels. Conversion rates have come under pressure, unsold stock is building, and storage is becoming an increasing challenge for some auction operators.
There has been plenty of debate about what increasingly competitive new-car pricing, particularly from newer market entrants, could mean for future used-car values once those vehicles begin returning in larger numbers. That remains an important question, but the first noticeable impact is already here.
Used car stock selection becoming important
Looking forward, August is expected to follow typical seasonal patterns as household spending shifts towards summer holidays, although demand for well-priced, desirable used cars remains healthy. Supply of younger fleet and leasing vehicles may tighten ahead of the September plate change, but strong part-exchange activity is likely to keep older vehicle volumes elevated.
Most auction partners expect stock levels to remain broadly stable, suggesting no major change in overall supply. Well-prepared three- to five-year-old vehicles should continue to perform well, while older, higher-mileage and poorer-condition stock is likely to remain under pressure due to rising refurbishment costs and cautious buying.
Although August CAP Live valuations at the three-year point have historically eased by around 0.6%, current market conditions, in particular the continued strength of used BEVs, suggest greater resilience this year. Accurate, real-time pricing and careful stock selection will remain essential as supply and demand continue to vary widely by age, model and powertrain.
With manufacturer incentives expected to remain strong ahead of the September registration plate change, these market dynamics are unlikely to ease in the short term. Retailers that continue to buy carefully, understand local demand and price realistically will remain well placed, even as the shape of the used car market continues to evolve.
Author: Chris Plumb, head of current car valuations, Solera Cap HPI
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