The buoyant used car market has helped car manufacturer finance hubs post record profits over the summer, easing the pressure on the car industry, as production and sales are restricted by the global chip crisis.
Volkswagen’s financial services arm almost trebled its pre-tax profit in the three months between July and September to €1.5bn. The finance industry as a whole has benefited from high used car demand, strong residual values (predicated future value of vehicles) and higher value loans from used cars having a higher than expected resale value.
Prices in the used car market particularly have significantly increased; as new car production fell, the demand is outweighing the supply, with many car dealerships reporting stocking issues. In some cases, used cars are being valued higher than their new car counterpart.
As the global chip crisis eases, the supply of vehicles will start to flow back into showrooms, which will mean used cars will steadily start to depreciate again like they would in ‘normal’ times.
Despite potential macro factors that could affect the market, such as raising fuel costs, inflation and potential interest increases, it doesn’t look like the market will change anytime soon. Christmas is traditionally a quieter period for the sector, and used cars naturally fall in December before rising again in January. However, there is nothing to suggest that’s going to be the case this year, and wider supply issues will affect large fleet and rental companies, as they are now turning to the used car market to plug the holes in their own inventory.
With PCP such a popular product, many consumers have reached the end of their agreement where many trade in their old car for a new one, but as such there is a significant waiting list, so it appears car makers want to prioritise retail sales first and much of 2022 will be making up ground on delivering cars to those customers whose agreements have lapsed.
Other industry’s supply chains are heavily reliant on the new car market, which goes beyond the individual in the showroom, so once retail has caught up they will then service fleet companies, third-party schemes like Motability and rental companies. So, although the future can’t be 100% predicted, it looks like used car prices will remain stable for much of 2022.
Do high prices mean the consumer will automatically lose out? Well not exactly – as mentioned previously, high residual values on PCP products will mean lower monthly payments. Another benefit at present is the fact that interest rates remain at a record all-time low of 0.1%; so if you are interested in a standard hire purchase (HP) agreement or even a bad credit car finance agreement, taking advantage of the low interest rates will make the payments cheaper and, even if the rates do increase, most HP contracts are based on a fixed rate of interest which means it won’t go up or down during the length of the loan.
There are pros and cons to entering the used car market at present – the decision should be made by the individual, but it does seem like current conditionals could be around to stay for a while longer.