Why are Used Car Prices Rising?

There can be no doubt used car prices in the UK are rising, and it is a trend that shows little sign of slowing down and is occurring in other mature markets, including the USA and Germany. Double-digit increases in used car prices over recent months are common.

 

To put some real-world numbers on it, in early June, online retailer BuyaCar.co.uk reported that its average used car-selling price rose from £13,108 in January to an all-time high of £15,399 in May.

So, just what is driving this rise?

In short, it is a perfect storm of several factors:

Shortage of New Cars

A global shortage of essential semiconductors required in the manufacture of new cars is hurting new car supply. Rather than wait for an extended period to take delivery of a new car, some people are switching to a used purchase, driving up demand.

However, this is only part of the picture; the lack of new car sales in the year following the pandemic has meant that the supply chain of used cars has diminished.  The shortage of new cars last year and the delays in bringing new cars to market now also mean that the supply chain will be lower than usual in the future. The current shortage will not be going away any time soon.

The COVID-19 Factor

During the pandemic, fleet purchasing slowed notably as businesses reined in their spending. Rather than buying new cars and vans, they extended contracts. Here again, this has restricted supply.

Many people who previously used public transport switched to a car to avoid the inevitable crowded spaces. A new cohort of people were added to the demand side of the supply/demand equation. It seems likely that this demand may well start to ease but moving back to public transport may not be for everyone as the concerns around COVID-19 and new derivatives continue.

Another COVID factor is the reality that many people have money to spend. Limited in their spending options, saving levels in the UK hit all-time highs. Now, people want to spend some of their savings.

The ‘Safe-Haven’ Value of Used Cars   

In times of turmoil, people have turned away from new cars and towards the used sector.  There is an inherent better-value equation to a used car, primarily linked to the lower purchase cost and continuing confidence in today’s cars’ reliability and safety. We saw during the financial crisis of 2007/2008 that such frugality gained an almost ‘tatty chic’ appeal.

So there we have it, a shortage of supply and plenty of demand. It is a combination that will see prices stay high for the foreseeable future.

Latest Insights

Mann Island Finance – Shortlisted for Two Awards at the Credit Awards 2022

2 minutes

The Credit Awards, the biggest, most respected awards programme in the credit and financial services industry is back and the Mann Island team will be there because the business is proud to have been shortlisted in two hotly contested categories.

Find out more

Credit Strategy Leadership Awards Success for Mann Island’s Head of Operations, Becky Letman

Credit Strategy Leadership Awards Success for Mann Island’s Head of Operations, Becky Letman

2 minutes

Winning awards has been a regular feature of Mann Island Finance’s success as a mainstream motor finance lender over recent years and the business is…

Find out more

Car Finance Awards Finalist

Mann Island Finance – Shortlisted for 3 Awards at the Forthcoming Car Finance Awards 2022

2 minutes

The Car Finance Awards have established themselves as the leading automotive finance event for organisations to be recognised for market-leading activity.

Find out more

Treating customers fairly

Find out more about our commitment to treat our customers fairly and to lend responsibly.

Discover more

Customer Security Check

Carry out a security check quickly and securely by completing our online form.

Get Started

Need to make a complaint?

All the information you need on our complaints process.

Complaint Process

New Customers
0370 600 6668

Existing Customers
0330 123 0332