Are used car values going to recover in 2020?

  • The UK lockdown slowed sales as buyers couldn't get out
  • Car dealers re-opened on 1 June – how are prices changing?
  • We analyse current used car values during this period of uncertainty

Vauxhall dealer with cars to sell

Britain has been in lockdown for months, with the car market severely affected by travelling restrictions. How does this situation affect car values, and how are they likely to change after dealers re-opened on 1 June 2020?

Parkers works with Cap HPI to provide used-car values, and we're not alone - most of the industry relies on this big-data model not only for asking prices and profit margins on used cars, but to set the residuals that ensure low monthly repayments on PCP car finance and PCH lease deals.

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This data isn't conjured out of thin air, either. A network of dealers, auctions and experts analyse the figures of what cars sell for, what they cost new, how popular they are and how quickly they sell to ensure a fair, realistic picture of used car values.

The same used car values that allow you to find out what your car is worth - or the next one you're thinking of buying - with a Parkers valuation.

What's affecting used car values right now?

Under exceptional circumstances such as the pandemic, however, numbers can be seriously skewed. Many dealers had closed their showrooms and though they re-opened on 1 June, they had been closed for two and a half months. It also took another two weeks before the government really encouraged shopping and more relaxed movement, and there are still restrictions around social distancing.

During lockdown, the definition of non-essential movement extended to car deliveries, but these have been eased since the middle of May – but car deliveries while social distancing and avoiding public transport are proving difficult.

Private marketplaces are still slower than they were before, but the cheaper Facebook- and Gumtree-driven end of the market showed a fairly cavalier attitude to restrictions anyway; we're only looking at the trade and dealership channels where prices are consistent and customer experience is a significant factor.

Prior to lockdown, used car values were around 2% up, and reduced volume of transactions ensured that position was unchanged in April. As restrictions eased, the market has recovered quickly - though Cap HPI expects this boom to be short-lived that could dip dramatically after summer, so if your purchase isn't essential it's worth holding on a few months more.

How much has lockdown impacted numbers? Trade transactions for May were 25% of normal despite glorious weather, which normally encourages sales. June's on track for almost normal levels by the end of the month, and more significantly, the trade's finding prices are almost 100% of guide price for the best cars.

Sellers may be under pressure to bring money into the household, suggesting buyers can look for deals. Similarly, car buying services such as Motorway find difficulty moving cars around when enforcing social distancing, applying further downward pressure to those who need to sell right now. Those services are restarting, though - and many sellers may find the offers for desirable models have increased compared to winter's pricing.

New car deliveries and trade-ins are delayed too – and manufacturing had been paused by most car companies between March and mid-May 2020.

How has the trade been responding?

In terms of values, Cap HPI is monitoring the situation closely and taking the pragmatic approach that until the end of June, used car values and residuals will only be adjusted in line with seasonal variation, not trade data.

The first numbers will start to come through in July, as auctions opened up on 15 June 2020, but it has been possible to gauge interest after the showrooms open, with the most popular cars being city cars and superminis. Though there are reports of buyers holding back for premium, upmarket models, Cap HPI expects that large cars will see a bigger dip in pricing later this year.

It's not a good time to trade in, though - at least, until the pent-up demand has settled. Residual values are expected to see a big dip of around 10% (maybe more) around 22 June, before prices stabilise. A downward trend is present, but small - no doubt helped by the relatively scarce supply until the stock from auctions filters through to retail.

Despite pressure from retailers, Cap HPI thinks the UK won’t launch a new scrappage scheme even though France and Germany have plans to. Germany has also reduced VAT across the board from 19 to 16%; a similar measure is unlikely here.

These preductions still rely on a relatively small pool of data from transactions. More accurate preductions will follow in the next three months, as trading finds a new level of normality.

Many car dealers had placed staff on furlough, which for those on low basic income/commission, has revealed another impact of Coronavirus in the UK. Small traders will be hardest-hit and reliant on self-employed support, which means many will be keen to remain trading as long as possible.

Service centres have, for the most part, closed as well, making it harder to prep cars for delivery and sale.

Preparing used cars for sale is harder as service departments are closed

What about used cars?

There's no law preventing you from going and buying a used car, though viewing, test-driving and even applying for finance might be harder while observing social distancing. Larger dealer networks are working to make online sales possible in lieu of re-opening on 1 June, but deliveries are still focused on essential services so key workers will be prioritised.

In the smaller private market selling areas, such as Facebook, eBay and other forms of classified advertising, the advice is to take care. You may find unusually cheap cars at this time as people become keen to sell – just keep on following social distancing guidelines.

Ownership documents can be transferred online, but new paperwork may be delayed. Cherished registration numbers can also be transferred and retained online. Cars need to be MoT'd, so be mindful of expiry dates, and how they have changed as a result of the March 2020 extension.

What this means to you

>> Don't panic – car values aren't going to collapse in the short term
>> Some premium cars are rising in value now, but are expected to fall more than mainstream ones
>> If you're buying or selling, take care and keep socially-distant!

Forecasts for used car values are essentially unchanged from the start of the pandemic, which in terms of residual values for leasing and PCP car finance offers is good news. Those figures were strong in the preceding year, and the offers you can get now for delivery when restrictions ease are very compelling.

As your existing car is unlikely to be accruing mileage, its value is also unlikely to change a great deal - though oversupply may mean your trade-in is worth less after summer. At most risk are three-year old premium cars - these tend to lose a lot of value.

For example, our long-term 2017 Mercedes-Benz C-Class Cabriolet went from £46,000 new, to £25,000 retail in two-and-a-half years. At the time of writing – three years, and 26,000 miles, the Parkers valuation puts it between £17,850 to £21,365. If the economic conditions in the UK take time to recover from the pandemic's impact, luxury cars like this will be harder to sell - though in the short term, demand is high and car buying services are making strong bids.

Three year old cars like this 2017 C-Class Cabriolet are most at risk from a fall in values

Some premium used car values are already dropping, as dealers who are in a position to sell try to move high-depreciation stock. In a nutshell, this can be summed up by the Range Rover Evoque - which has remained above £10,000 as a 2012 used buy for 18 months in our classifieds, even as the prices of younger models fall.

The combined effects of 20-plate registrations, falling demand due to Coronavirus measures and a new model with competitive leasing/PCP deals have finally brought a reasonable used Evoque into four figures - so there's good news if you've been waiting for an affordable luxury SUV.

The reality is though, for the next three to six months, used cars and places to drive them are going to be far from the minds of the UK's consumers. Sensibly, the industry is accepting that and monitoring activity very closely, rather than trying to aggressively encourage sales – and that means that when normality returns, whatever that looks like, the used car market should follow suit.

Right now, forecast car prices for July to September 2020 show a downward trend, and factors that have yet to surface are being considered, such as the pressure of economic uncertainty, the risk of higher unemployment/redundancies and the potential for a second Covid-19 wave. At the time of writing, 9 million people are still furloughed and most firms are looking to shift to a working-from-home model, decreasing the pressure and need for a car for many families.

Those who need a vehicle for work, however, are finding the lack of supply an issue. Van, pickup and LCV values are on a small upward trend, expected to continue through to September.

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Range Rover Evoque (2020) front view