Second hand cars – Price surge

Second hand cars – Price surge

“I went into an electric car dealership and asked them how much they charged”.

The latest Consumer Price Index (CPI) for November 2021 showed the largest 12 months increase
since September 2011 at 5.1%. One of the largest contributors to this rise was in transportation,
with used car prices showing the largest contribution to the figures since the start of the National
Statistic series in January 2006. Used car prices have risen by an astonishing 31.3% since April 2021.

Why has there been such a spike in used car prices I hear you ask? Demand for used cars has been
driven by a combination of factors that have all come together to create a dream market for second
hand car dealers which in turn has led to a surge in on-line car trading platforms. This has provided
work for some television personalities and boosted advertising revenue for the commercial TV

After the lockdowns of the last 18 months many consumers have been able to increase their savings
and they either wanted to upgrade their cars or switch to a greener alternative such as a hybrid or
all electric car. The problem is that new car production has been drastically reduced by a global
shortage of semiconductor chips and labour disruptions which have slowed down production lines.
So, fewer one-year-old cars are coming onto the market following the fall in new car registrations
last year. This meant that leases have been extended resulting in fewer part exchanges than normal
which has been caused by the fall in new-car supplies.

This problem is not peculiar to the UK and the chart below shows that prices have risen even higher
in the United States. Prices have also risen steeply in Europe.

Until new car production returns to normal the market for used cars is going to remain strong. This
leads to the question, at what point does one sell the car and downgrade for the short-term, having
made a nice profit, before buying a decent motor when the market stabilises again.

Richard Harper
Head of Asset Allocation
GHC Capital Markets Limited