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Used car value growth ‘not sustainable in the long-term’ says Cap HPI

Derren Martin, head of UK valuations at Cap HPI

Cap HPI’s head of valuations has said that the continued growth in used car values is “not sustainable in the long-term” - but may continue into 2021.

Speaking after the valuations specialist’s market data indicated a marginal 0.4% (£65) increase in values in its benchmark three-year, 60,000-miles market sample, Derren Martin reiterated his opinion that the upward trajectory would falter.

Back in August Martin told AM that used car values could be on course for a similar “market correction” to that seen in May last year as increased vehicle supply and faltering consumer confidence – a result of the ongoing COVID-19 mitigation measures – started to show their effect.

Today (September 28) he said that there was currently “no evidence of a dip”, however, suggesting that any easing of prices may not happen until the New Year.

He said: “Whatever new car volume September brings, more of the part exchanges than normal will be retailed directly by franchise dealers, and this will likely keep auction stocks lower than is the norm for the time of year, helping to keep used values stronger than they may usually be at the start of the final quarter of the year.

“Prices are higher than they were a year ago and have been steadily increasing for some time. That dynamic is not sustainable in the long-term, as shown by historical Cap HPI data.

“Still, at the current time, there is no evidence of a dip, so any likely downturn could even be delayed by a number of months and into 2021.

“Of course, there could well be some seasonal downward movements over the final quarter that are normal for the time of year.

“It is clear that there has never been a more important time to track Live values.”

Cap HPI’s market data has shown that a slight dip in used car values at the start of January and in the 10-days prior to the lockdown announcement on March 23 remain the only downward movements of 2020. 

Overall, average values are now over 7% ahead of where they were a year ago.

Earlier this month Auto Trader reported a 19th straight week of used car price rises, with a 7.4% mid-September increase in the average advertised values.

However, sales in the used car retail sector showed signs of “cooling off” in August according to a wider European market report compiled by Indicata – with retail sales down 3.3% year-on-year.

In September petrol and diesel cars have both risen in value, on average, while electric vehicles (EV) and petrol-hybrids have reduced once more, according to Cap HPI.

City cars reduced slightly, it said, but have seen the biggest increases over the last few months.

SUVs remained the most popular, increasing in value by 1%, or £150 on average, at the three-year old point.

Martin said: “Demand picked up in September after a slight lull at the end of August.

“Consumers are still buying for a number of reasons: to avoid public transport, to downsize to save money or upgrade to spend savings made over the summer period, because a finance agreement is ending or purely because they want a change.

“All of this has led to a much-needed positive few months for used car dealers, after the dark days of lockdown. We hear very little negativity from retailers across the UK. 

“The positivity is clear, strong sales numbers and healthy margins are seeing retailers post incredibly good short-term results, turning a weak second-quarter into a very strong third.”

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