Inflation indicators: used car edition

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As FT Alphaville reported last week, used cars around the world are experiencing unprecedented price appreciation.

We recently spoke with Derren Martin at Cap HPI, a UK-based market valuation expert, about the factors motivating the inventory shortages behind the price rises.

The UK market, according to Martin, has been experiencing a perfect storm of both supply and demand-side challenges. On the demand side, he said, it was being hit by the bulk return of buyers who had put off purchases until after lockdown as well as those who now wanted to upgrade their cars with their Covid savings.

On the supply side the market was being put under pressure by extended wait times for new cars due to the semiconductor shortages out of Taiwan. But, as Martin added, there was also a general shortage of stock due in the system due to fewer new-car registrations over 2020 and far less de-fleeting by rental companies.

What really caught our eye, however, was the following chart from Cap HPI’s latest Car Market Overview:

Yep, prices are anticipated to rise 6.7 per cent over the course of May (as indicated confusingly under the June heading), in a market where depreciation is usually the norm. For context, the largest movement up during a single month before this year was a 1 per cent rise in February 2018.

In nominal terms that amounts to about £825 per car, reflecting inventory that is about three years old.

So far this year, one-year old cars have not increased to quite the same level in percentage terms, going up 5.6 per cent month on month in May, but were clocking in higher average nominal rates of about £1,200 due to higher overall values.

Martin also told us buyers weren’t discriminating against diesel cars, as might otherwise be expected because of upcoming environmental restrictions. In fact, traditional fuel-types (petrol and diesel) were tending to outperform electric vehicles, although hybrids were also experiencing a resurgence.

From the Cap HPI note:

The traditional fuel-types of petrol and diesel continued to prove the most popular and saw the largest average increases (7.2% and 6.4% respectively), but hybrids and plug-in hybrids also saw a resurgence. Some of those hybrids hardest hit on price over the last year, namely Toyota Auris, Prius and Prius+, all saw prices increase by huge amounts during May, by 13%, 9% and 8% respectively, at the 3-year point, equating to £1,100, £950 and £1,000.

And it seems there was little variation between manufacturers:

Some volume examples from across various brands and sectors are Ford Fiesta up 8.5%, which is over £1,000 at the 1-year age point, Audi A3 up over 7% (£1,300 at 1-year old, £800 at 3-years), Vauxhall Zafira up 10.4% (c.£750 at 3-years), Mazda 6 up 8.1% (c.£700 at 3-years), BMW X3 up 6.2% at 3-years old (c.1,500) and Volkswagen Tiguan Petrol up 10% or £2,400 at the 1-year point.

Given the market action, some have wondered why retail prices have been much slower to catch up with the price trends than wholesale ones.

According to Cap HPI, this may be because dealers have been slow to pass on the price hikes to customers. Yet, this could be changing shortly:

With many outlets still selling cars that they had purchased a few weeks ago, not all were increasing advertised prices of cars in-line with the increased demand that they were experiencing. It took some time for many to realise that they could push prices up and that it would be impossible to replace sold units for amounts similar to what they had paid for them.

There have even been reports of dealers buying from other, cheaper retail sources, as cars were priced lower than wholesale cars were selling for at the time. Many dealers were also doing all they could to be competitive on part-exchange prices paid, realising a retail opportunity was to be had, as well as buying cars from private individuals on retail websites and even calling up customers that they had sold cars to previously, offering to buy the car back, sometimes for higher than they had bought it for.

One thing is for sure: it’s an extraordinary time in the market.

Related link:
My kingdom for a used car – FT Alphaville 

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