The past few years have seen demand for used cars soar, with the latest figures from Auto Trader revealing the average cost of preowned vehicles climbed by more than 30% compared to 2020 figures. Currently, British motorists are looking at price tags of approximately £17,800 for used vehicles.
Why have used car prices gone up? Richard Walker, Director of Data and Insights at Auto Trader doesn’t sugar-coat the situation and says “2021 was a remarkable year for the automotive industry. Used vehicle pricing saw double-digit growth and used cars flew off the forecourts in record time.”
So, why are used car prices going up and when will the market cool off? Below, we take a closer look at some of the main factors driving demand for used cars, when you can expect prices to drop and the best options for shopping in a hot market.
Global semiconductor chip shortages
Semiconductor chips may be small, but they power everything from cars and computers to smartphones and medical equipment. In 2021, a global semiconductor chip shortage caused by unplanned COVID factory shutdowns and international shipping challenges bought the car manufacturing industry to a grinding halt.
With British car dealerships facing a shortage of new vehicles, many buyers were forced to turn to the second-hand market. This not only increased demand for preowned vehicles but shrunk sales of new cars, which is ultimately what feeds the used car market.
The supply chain issue was so drastic that “almost new” cars with low mileage and less than 12 months of use were selling for the same price, or in some cases even more than brand new models. For buyers who can manage to secure a new car, wait times are often more than a year. If you’re wondering why have used car prices gone up, the semiconductor shortage is a major factor.
The EV market is growing
The latest figures reveal that battery electric vehicles (BEVs) accounted for around 4% of new car sales in 2021. This marks an impressive growth rate of more than 3% compared to the 0.6% market share BEVs accounted for in 2019. The market for electric vehicles is growing fast, with an increasing number of manufacturers launching new models and building on existing technology.
Back in the mid-2010s, purchasing new was the only way to get your hands on an EV. Today, it’s possible to purchase used EVs for a fraction of the cost. With big road tax savings and zero fuel costs, it’s easy to see why demand for used EVs is higher than ever. The Nissan Leaf is one of the most popular used EV models in the UK, with the latest Auto Trader data revealing the zippy models take just 17 days to leave used car forecourts.
“It’s incredibly positive to see a pure electric at the top of the list for 2021 for just the second time in the seven years we’ve been tracking the fastest selling used cars,” says Auto Trader commercial product director, Karolina Edwards-Smajda.
“There’s been a real breakthrough for EVs in the UK over the last few years, but 2021 really did mark a major step forward in terms of heightened levels of demand. This was driven, in part, by the greater choice and availability of models, as well as the recent fuel shortage which helped to further accelerate consumer consideration.”
Used cars offer great value for money
While most people dream of driving out the showroom in a brand new vehicle, used cars offer irresistible value for money. A recent report from Moneybarn revealed just how big of a financial commitment a new car is. The British finance group found that new car prices have increased five times faster than national salaries.
Today, purchasing a new car costs motorists around 150% of the average UK annual salary. This alone is forcing more Brits to consider purchasing used instead of new. And yes, while some used cars are selling for the same price as their brand new counterparts, there are some great deals to be had on used cars that are 12 months or older.
When will used car prices drop?
Demand for used cars is expected to remain high in 2022, a trend that will be largely fuelled by the ongoing semiconductor chip shortage. Toyota executive Kazunari Kamakura predicts the iconic manufacturer will miss its 9 million vehicle production target for 2022 due to semiconductor shortages, which will have a domino effect for the used car market.
So, when will used car prices drop? While the market is very hot right now, many analysts expect the bubble to burst by the end of the year. Nothing is certain but we’re hoping there will be a price correction soon.
While the used car shortage and high prices will likely stretch into 2022, with a good strategy there’s no reason why you can’t score a great deal this year. Here’s how:
Boost your budget with car finance
First, consider boosting your budget with car finance. A car loan from a trusted provider can help increase your spending power and get you behind the wheel of a quality used car sooner. You can get a better idea by looking at a car loan example online. We’re here to help with the best car finance deals in the UK. Get in touch with the My Car Credit team today to discuss your options.
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