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Originally Posted On: https://www.jjpremiumcars.co.uk/thehub/why-are-used-cars-so-expensive-and-will-they-ever-drop

Cars are more technologically advanced than ever. Crammed full of touchscreen displays, sensors and entertainment systems, they transport us from A to B more safely, swiftly and comfortably than cars of old.

There’s a slight hitch though, as it turns out. Modern cars have become so reliant on semiconductors and microchips that they can’t be built without them; even lower-spec models increasingly come with touchscreen displays as standard. So, when Earth hit the pause button following the outbreak of Covid-19 in 2020, semiconductor supplies dried up – and car makers began to struggle.

The new car shortage

Realising they’d come a cropper, car manufacturers began removing optional tech and safety features from their models, in effect ‘rationing’ their dwindling supply of semiconductors.

Pretty much every car manufacturer suffered. Take BMW as an example – they removed the following optional features from their popular 3 Series saloon:

• Wireless phone charger
• Adaptive cruise control with stop & go
• Front and rear cross-traffic alert
• Lane-keeping assist
• Side collision warning
• Junction assist
• Semi-autonomous parking assist
• Tyre pressure monitor
• Dash cam

And that was just the tip of a very large iceberg. The vast majority of their lineup was affected, from the 1 Series right the way through to the 7 Series and X7. For many manufacturers, this was a best case scenario. Some, like Jaguar Land Rover, had to halt production of certain models entirely.

If you want a new Evoque, say, you’d have a long wait to contend with. As of right now, the majority of the SUV range isn’t even available to order – and the few models that are could take 12 months to arrive. Most people spending over £50,000 on a car (understandably) don’t want to wait that long, so turned their attention to the second-hand market instead.

The used car boom

Supply and demand. Two simple words that explain exactly what happened to Britain’s used car market. With supply of new cars at an all-time low, demand for second-hand models spiked… but supply didn’t. There was only ever going to be one outcome.

According to figures from the Society of Motor Manufacturers and Traders (SMMT), new car registrations last year were still almost 30% down on pre-Covid figures. By contrast, over 7.5m used cars changed hands in 2021 – that’s 11% more than the previous year.

When you take a look at the figures, it’s no wonder that used cars went up in price. But by how much? According to BuyaCar.co.uk, the average price of the used cars on its site in January of 2021 was £13,108. By May – just four months later – this had shot up to £15,399.

Used car valuation provider cap hpi was one of many that had to take another look at its price guides. The company boosted the average value of a used Mini Cooper S by 18.1% and a Renault Kadjar by 17%; normally these cars would be depreciating, so rises like these were truly unprecedented.

Britain’s most popular used car, the Ford Fiesta, didn’t escape the price rises either. Despite there being thousands of examples available for sale, the average price on the AA Cars website rose from £7,448 (pre-Covid) to £9,770 in late 2021. Nearly new models proved most desirable, with thousands of prospective new car buyers snapping them up instead of placing an order at a Ford dealership.

The semiconductor shortage wasn’t the only thing influencing used car prices, though. Covid lockdowns also had a part to play.

The Covid effect

The pandemic’s various lockdowns and travel restrictions meant more of us were spending more time at home. Going into the office became a distant memory for millions of workers across the country – as did going on holiday! But for all the downsides to pandemic life, there was one clear benefit: saving money by not having to commute.

With reduced travel costs and streamlined expenses, many people were able to save up for aspirational purchases they’d always dreamed of – a house extension perhaps, or a fancy holiday… or a car they’d long lusted after. Most of us had more time on our hands too, and car enthusiasts often spent that time looking at cars for sale online. With extra cash burning a hole in their pockets and all the time in the world to find the perfect car, Covid seemed like the ideal opportunity for many people to invest in the car of their dreams.

Demand for certain models rose dramatically in a matter of months, particularly those built in the ‘90s – and especially Japanese models. Cars that had been £5k or £10k for many years went from steadily increasing in value to exploding. Nissan’s Skyline and Silvia models, along with Toyotas like the Chaser and Supra, were most noticeably affected – but they were by no means the only classic cars to appreciate wildly. Pretty much anything cool from the ‘90s went up.

These stratospheric price rises have now started to plateau, but they’re certainly not falling – and there’s no sign that they’re about to. Classic cars aside, what’s the outlook for used car prices more broadly?

The current situation

The question we all want an answer to: will used car prices come back down? Industry experts generally concur that they will, but nobody knows exactly how long it’ll take. Semiconductor shortages are still plaguing the new car industry – and as long as this problem persists, so will the current price of used cars.

Speaking in 2021, Richard Walker, director of data and insights at Auto Trader, said: “The new and used car supply constraints will last for much of next year, and with the economy set to grow, we can expect to see the very robust levels of consumer demand continue.

“Simple economics therefore point to a continuation of very strong price growth well into 2022.”

Will the new car market bounce back this year? Time will tell, but all indications are that its recovery won’t be the work of a moment. We say hold off on placing that new Range Rover order for just a little bit longer