Used car values could be set to come under renewed pressure, after a study by CAP Black Book revealed competition from new models would force values to depreciate.
Stronger sales in the daily car rental sector will combine with ever cheaper new models to keep used car values low, according to the study featured in MotorTrader.
After a period of several years of strong sales, particularly in one and three-year-old used models, analysts are now suggesting prices could be on the brink of a marked decline.The US used car market is worth $370bn annually, accounting for over 50% of spend in the industry according a leading company that provides services for used car dealerships. But with manufacturing efficiencies driving the cost of new cars down, there is some concern that used cars will begin to seem like a less attractive option.
Used cars are statistically more likely to break down. Because they are older than new cars by definition, used car buyers tend to experience more maintenance issues – along with the associated costs. Their traditional strength was the fact they were cheaper, and many buyers chose this trade-off to save money on their car.
But new manufacturing techniques and industry innovations are converging. New car manufacturing is not as labour or as cost intensive as was once the case.
Advanced manufacturing allows for more efficient production. While the processes are more specialized, cutting edge machinery allows for cost savings to be made at the production stage.
As a result, new cars are becoming cheaper, making the market much more competitive. For some in the used car industry, these are concerning times.
A glut of fresh used cars of just one year old has done the market no favours. Those looking to sell second-hand now face an uphill struggle to catch the attention of buyers. With better offers elsewhere, sellers will have no choice but to drop their prices if they want to find a willing buyer.
And with these trends projected to continue over the coming decade, CAP are not alone in their assessment of the quandary of the used car market. Others in the industry are now pointing to increasing affordability of new cars.
Team Nissan North, an authorized Nissan dealership, said that increasing competitiveness of new cars meant more buyers were able to afford brand new models. “Many customers in the used car demographic are now eyeing up better offers in new cars. With manufacturing costs constantly being forced downwards, there’s never been a cheaper time to buy new.”
But for those selling second-hand, this might not be such good news. Derren Martin, editor at Black Book Live, said that the market would retain its integrity but see a steady decline in the prices it supports.
“Values may well drop for the reasons we have identified, but they have not done so for some time. Depreciation is a fact of life and we should not be too downbeat that it is happening again.”
There are almost 50 million used cars sold in the United States each year, still outnumbering new cars sold by almost 3 to 1.
With excess supply and the affordability of new cars at it’s greatest ever level, it looks a certainty that this balance will shift in the years to come.