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The global semi-conductor shortage means demand for used cars from fleets is at a huge level, keeping values high

 

A global shortage of semi-conductors, components essential to the production of new cars, is affecting the UK used car market. Combined with other factors, the end result is a big increase in the value of used vehicles, and increased competition for cars being defleeted. 

Well-documented vehicle component shortages, including shortages of semiconductors and other integral materials, has drastically reduced the production of new vehicles, in some cases halting assembly lines” explains CDL Vehicle Information Services’ head of vehicle valuation services, Jon Wheeler.

“This combined with the import/export tariff confusion due to Brexit has really put the UK new vehicle market on the back foot. Adding to the long list of catalysts has been lockdown 3.0, when pent-up demand was building at rapid pace.”

The end result, he says, is a “perfect storm for used car transaction levels and a record run of used vehicle valuation increases”. The latest figures from the Society of Motor Manufacturers and Traders reported a 108.6% rise in used car transactions in the second quarter of this year, compared to the pandemic-hit 2020, and the year-to-date figure sits at 33.3% up.

The knock-on effect for the used market is two-fold, because not only are private buyers considering nearly new models, but fleets are extending replacement cycles, reducing the number of three-to-four-year-old cars even entering the used market.

“Demand exceeds supply and so used prices are expected to remain high for the coming months,” adds Aston Barclay managing director Martin Potter. “Prices are likely to stay high until later in Q4.”

Potter does predict that used values should remain strong into the second quarter of 2022, with many manufacturers predicting semiconductor supply shortages will affect production well into next year.

CDL’s Wheeler agrees that the market has peaked for the short term, and predicts it will settle at the current level for the rest of 2021.

ISSUES TO REMAIN FOR THE LONGER TERM

The impact of the combined pandemic/Brexit/semi-conductor carnage will be felt well beyond next year, with the ripple effect of the big reduction in new car sales over the past two years leading to a dearth of three-to-four year old cars in 2024/25.

In 2020, just 1.63m new cars were registered, compared with 2.3m in the ‘normal’ year of 2019. July 2021 figures were down 22.3% on the average sales across the past decade. End-of-year predictions put 2021 more than 20% down on the 10-year average new car market at 1.82 million, which is 11.7% up on the pandemic-hit 2020.

“Jump forward another few years and the real balancing act will begin,” says CDL’s Jon Wheeler. “Very few three-to-four-year-old cars will be in the marketplace and forward planning will become a must for the used car industry and its ecosystem. Used car prices could surge again.”

CONDUCTING THE MARKET

BCA UK COO Stuart Pearson shares his thoughts on the state of the UK used market

Stuart-Pearson - MD - BCA UK Remarketing

Stuart Pearson – BCA UK COO Remarketing

 1. Historic highs keep coming.

Strong demand in the wholesale market from professional buyers continues to drive used car prices to new heights.  The market has seen record price increases over the past few months and BCA reported record values during June and July, supported by sale conversion rates reaching historically high levels.

2. Prices beating guide adjustments

Sold values continue to outperform guide price expectations, despite some significant adjustments being made by guide publishers in recent months.  

 

3. Used car market is both flexible and robust

The used car market responds very quickly to shifts in supply and demand has proved to be remarkably robust throughout the pandemic. The improving economic outlook has generated a lot of positivity.

4. New car supply creates a ripple to older cars.

The situation has undoubtedly been driven by issues around new car supply, which directly generates demand in the nearly-new sector with more competition for these younger used cars. This demand can quickly shift with the same ripple effect being felt down the value chain.

5. Online sales quickly reflecting market demands.

Over recent weeks we have seen values for corporate stock – typically up to three years old – steadily rise.