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An anticipated economic recession may not have a significant impact on used car values, it has been said.
Cap HPI head of forecast strategy Dylan Setterfield said this view was based on evidence of market performance during previous recessions, with buyers facing tighter finances likely to switch from new to used car purchases, propping up demand.
Setterfield was one of the speakers at the Vehicle Remarketing Association's (VRA) annual seminar, on 'The year ahead in remarketing'.
He told delegates: "[Recession] is not necessarily a disaster in terms of used car prices.
While we were in recession in 1991/92, [prices were] pretty normal. As the economy started growing when we came out of recession, that was when we started to have a bigger reduction in used car prices.
"In the [2008] financial crisis, we saw the impact on used car prices much quicker than the overall economy, virtually overnight. We also recovered quicker - used car prices recovered quicker while the overall economy was still struggling.
"The reason why it doesn't necessarily have a big negative impact on used car prices is because it changes customer behaviour. Someone thinks 'I can't afford my car anymore, I need something smaller, or older, or with higher mileage', and you actually get increased activity.
"You also get some people who were going to buy a new car, deciding they are going to buy a used car. So, it doesn't stop used car buying activity - it changes that activity."
Setterfield said that one of the factors which would affect the used car market in 2023 was the three-year anniversary, in March, of the first Covid-19 lockdowns, at which point there would be an obvious drop in three-year-old ex-fleet vehicles coming to market.
Discussing the general market outlook, he said: "The used car market has been incredibly robust. We are expecting a bit of a market correction next year, but we are not expecting a crash. It is not 'what goes up must come down', but a genuine reset of the entire used car market.
"The negative impact we are expecting to see of whatever happens in the economy is going to be outweighed by a reduction in used car volume because of lower new car registrations."
During the seminar, Setterfield also addressed the suggestion that EV residual values could be affected if new improvements in battery technology made existing vehicles appear to be lacking in range.
He said: "We don't think actually very much will happen. If you look at the first wave of EVs, those cars only did 90 miles on a charge in the first place, and you'd be lucky to find one now, 13 years old, that does as much as 70 I'm going to guess, but those cars are still doing really well in the used car market - still a massive premium over the equivalent [ICE] city car models, and no sign of any deterioration.
"There isn't really evidence that when a new battery comes onto the market, the old battery suffers.
"It is potentially different when you get into different types of battery technology, solid state batteries, [but] those aren't necessarily all going to go immediately into passenger cars - that will be a much longer-term thing."
Although developing battery technology may not be too concerning from a residual values point of view, the seminar also heard evidence that rising energy prices may currently be affecting demand.
Auto Trader EV insight manager Louis Maxwell said: "Supply of used EVs has overtaken demand. Of course, if supply is ahead of demand we will quickly see that stock sell slower, and we are seeing early signs of that, and what it will also involve is changes to prices, and likely retailers cutting prices of those used EVs."
Despite this potential very recent trend, motor industry expert David Bailey, professor of business economics at Birmingham Business School, said the new car market shift towards EVs was still very much on, with diesel cars a particular casualty.
He said: "A massive shift from diesel is ongoing. There is still big demand in the used car market for diesels, but effectively in the new market it's dead, it's not going to recover.
"Battery EVs will outsell diesels this year, and that is a bit of a watershed moment in the industry.
"Diesel sales are in decline across Europe. That will continue, and remember this is a kind of distorted market anyway because we gave lots of tax breaks to diesels because we were concerned about tailpipe emissions of CO2, even if over the whole life of a diesel they weren't actually that much better. So, car firms are pulling out."
Bailey predicted that migration to EVs would also be motivated by reducing battery costs.
He said: "The shift to EVs is coming big time as battery costs come down. A key figure, which I keep saying, is once battery costs get to about 100 dollars per kWh they will out-compete the internal combustion engine, both in terms of up-front price and running cost.
"China is getting very close to that, they are already there in terms of batteries for commercial vehicles."
However, the seminar also heard from Geraint Isaac, MG head of fleet sales, who said that this year at least, battery costs were trending in the other direction.
He said: "We are seeing, this year alone, a ten-fold increase in battery costs, and at the moment battery prices are still going up. Now. I think they could reduce, but when remains to be seen."
One effect of EVs that Isaac did advocate for is an end to badge snobbery.
He said: "Five or six years ago, maybe longer, if you're a company car driver with £30,000 to spend on a company car, generally there's probably three brands that would be looked at, and they are the German brands.
"With EVs, that's gone away. People are looking at different brands, looking at what suits them best."
Reflecting on the seminar, VRA chair Philip Nothard said: "There is a whole list of issues facing the remarketing sector - from recession to stock shortages and agency agreements to electrification - and these will need to be met with intelligence, commitment and often investment.
"However, there was also a very clear message coming through that this remains a sector that, by adapting to changing rapidly customer needs and difficult market conditions, will very much grow and thrive."
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