Used cars are very valuable and there are few of them around. That is rather stating the obvious, but it is about as succinct a summary as we can manage.

If you take out the periods when the UK was either in lockdown or imminently facing it, second-hand vehicle prices have been at least above average, if not obscenely high, since the beginning of the pandemic – and they were not doing badly before it. 

The trend is predominantly driven by what is now a long-term lack of used car supply, egged on by the semiconductor shortage and glacial lead times for new cars. Business Car has been told that the latter has caused major rental companies, which would normally have a steady flow of new product direct from manufacturers, to shop for used vehicles at auctions and at dealers to sustain their fleets. 

Little, if any, of that will be news to those with an eye on the used car market, but when values eased off a bit at the end of 2021, it promoted some to ask if 2022 would be the year when the price bubble bursts. 

“There’s never going to be a crash,” says Derren Martin, head of valuations at Cap HPI, “there just aren’t enough used cars out there to cause supply issues.”

He is absolutely right. In a normal market (strange a concept though that may be these days), you would usually expect prices to tail off ahead of Christmas, and that is exactly what happened. It was a slight reduction from an already high base. 

“When I say softening, I really do mean softening,” says auction company Aston Barclay’s group managing director, Martin Potter. “There’s certainly no impending crisis of car prices free falling back the other way in any way, shape or form.”

He adds that prices for at least three of six sectors (read bodystyles) had risen by “about 40%” since January 2021, while Potter puts some percentages to the recent moves. 

“In October, we saw a big slowdown of the increase in values. They still went up, but by 1.2%, whereas the previous month they went up by nearly 6%. In November, they went down by about the same amount that they went up by in October, so they kind of undid what happened the previous month. that was after eight months of increases in values.

“To put that into context, that 1.2% reduction in November was actually the second most positive move we’ve ever seen in that month – even though it was a downward movement.”

BCA’s average sale price dropped to £9,571 in November, down from £11,295 in October and a record high of £11,817 in September. The auction giant was quick to point out that November’s figure was £1,855 and 19.8% up year-on-year. 

As for what 2022 holds, no one close to the used car market is expecting a drop in prices to any notable degree. Rather, more of the same. 

In the Vehicle Remarketing Association’s (VRA) five-minute update, Glass’s Guide’s chief editor for cars and leisure vehicles, Jayson Whittington, says he “expect[s] values to level out at the beginning of [2022] as we believe they may have reached their peak”.

Potter is also predicting a slight rise, probably in the first quarter, but nothing like what the market experienced last year: “You might see them going up by what they’ve gone down by in the last couple of months,” he says. 

“New vehicle supply will continue to be constrained well into 2022, and this will mean more of the same for used cars in terms of increased demand coupled with increasing values,” adds Cliff Deller, remarketing and digital retail consultant at Orchid Automotive. 

“I would expect, from mid-late January, that we will again see huge retail demand return as consumers are not prepared to wait 12-18 months for their new car [and] will instead switch their buying intentions to used.”

If there is any hope of an increase in supply, it is expected to come at the end of the year, in tandem with what many think will be the retreat of the semiconductor shortage and an opportunity for fleets to replace some of their vehicles. 

“We do see some pressure on price later on in the year when supply gets a little bit more back to normal,” explains Potter. “We’ll start to see some of the cars that have been extended on lease coming back into the used car market. Volumes will increase. I personally think probably second half of the year. 

“But we have to realise that cars depreciate and there is deflation in pricing as they get older, so if you knocked 10% off values this year, they would still be 20% up on where they were. Basically, some pricing realignment will come at some point, but it’s nothing to worry about.”

Potter more or less agrees. He predicts that values are not at risk of anything like a significant fall until “at least quarter three this year” and thinks it is likely that the current strength of prices will continue for longer, as manufacturers have long queues of fleet, rental and consumer customers to satisfy (he elaborates on the timeframe in ‘Supply: it must get better in the long run, mustn’t it?’). 

With the caveat that any auction company would be glad of the stock these days, his advice to organisations with vehicles anywhere near ready to defleet is to do it sooner rather than later. 

“If they can secure new car supply, I would recommend that they try and satisfy some of those customer orders and get the stock out because, obviously, the price that they can achieve for those used cars is going to be strong. 

“Plus, they don’t want to be running ageing fleets all the time. At some point, those cars are either going to start costing them more in maintenance to keep them running, or the customers or drivers themselves won’t want to run those cars for ever and ever, so while there is demand for that stock, they should take advantage of it where they can.”

Supply: it must get better in the long run, mustn’t it?

If the majority of predictions are true, then the semiconductor shortage will not fully recede until 2023 and, even then, there will still be a lag between full-tilt production and the arrival of new vehicles on fleets, which could extend the current period of low used car supply well into the middle of the decade.   

“You have to start asking yourself about long-term used car pricing,” says Aston Barclay’s Martin Potter. “There’s a growing number of used car retailers out there in terms of the size of the mouth to feed, and most franchise dealers are investing more in the used car retail sites. If we get to 2023, you then have to look back three to four years to 2019, which had lower registrations.” 

He points to the peak years for new car sales in the middle of the past decade, which topped out at 2,692,786 units in 2016. That caused a short-lived dip in used values in Easter 2019 (arguably the most significant fall in recent memory) when a chunk of vehicles registered in March that year made their way into the used market. He applies the same logic to the past three years. 

“We were only talking something like 1.6 million [new car] units last year. We’re going to do another 1.6 [in 2021] and next year’s probably going to be much the same,” says Potter. 

“You’re going to be nearly two million cars less than you’d normally see in any three-year period. I think there are generally going to be less cars around than we’ve had in previous years because, by 2023, you are now back into a three-year fleet cycle. So, used car pricing is going to stay relatively strong for the next two or three years.”