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Used Cars Market Rebounds After Ease In COVID-19 Lockdown

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Used Cars Market Rebounds After Ease In COVID-19 Lockdown

July 28
07:20 2020

Signs of cuffs falling off the used car market are evident after the ease in COVID-19 lockdown restrictions. In light of the recent global pandemic situation, the automotive industry witnessed a massive cutback in sales compared to last year’s figures for March and April. However, according to Cap HPI, the used car market is now showing signs of recovery.

Demand, trade-ins, and Residual Values (RVs) for used cars dwindled with potential customers, dealerships, and car manufacturers practicing social distancing. It led many secondhand car dealers and wholesalers to refuse to purchase any stocks. Meanwhile, dealers, car check service providers, and online auction sites have been holding the fort, encouraging customers to benefit from the situation. Due to low sales during the lockdown, the prices of vehicles were on the lower end.

However, several surveys indicate positive signs of recovery across different used car markets in the world post-lockdown. 

UK Used Car Market:

UK’s used car market is looking to get back into form in the aftermath of the COVID-19 lockdown, and government’s decision on Brexit (i.e., leave the European Union) bodes well for the revival. 

In May 2020, trade transactions were off by 25 percent. However, INDICATA’s data analysis results are proof of England’s rebound from the lockdown. The sales went up by 3.4 percent during the first ten days of June 2020 compared to the same period during 2019. 

INDICATA launched a free Market Watch in thirteen countries to assist businesses in managing COVID-19 impacts on their used car assets.

By 16th June, INDICATA specified dealers had been more cautious about replacing their sold stock with sales exceeding supply by 71 percent. They were short of about 100,000 used vehicles in the UK’s dealer network w.r.t pre-locking inventory. It will likely cause a rush to the source stock to avoid emptying the forecourt spaces. The data points to an increase of 0.5 percent in secondhand vehicle prices that some benefitted from while others suffered its drawbacks.

There was an even brighter outcome recalling the seven days between the 4th and 10th of June. Secondhand car sales grew by 13.3 percent. Breaking it down equates to about 12,000 used car sales per day, which puts the UK used car market right back at COVID-19’s pre lockdown level.

Moreover, reports from Express.co.uk speculate that leaving the EU will cause a switch to used vehicle sales. Britain is currently in talks with the EU to seek an FTA (Free Trade Agreement). As confirmed by the Department of International Trade under rules set by WTO (World Trade Organisation), failure to settle an FTA will result in a 10 percent rise in tariffs imposed on cars produced in EU countries from 1st January 2021. It is potentially good news for secondhand car dealers.  

Tom Preston, used vehicle expert, and director at Hippo Motor Finance, states: “Brexit won’t impact used vehicle prices. They should remain stable whatever the Brexit outcome is due to the fact that used vehicles are all paid-for stock. The vehicles have already been on UK roads, they don’t need to be imported from the EU, and there’s no need for additional costs like for components, which are manufactured overseas.”

Australian Used Car Market:

With bit by bit lifting of the lockdown measures, the Australian secondhand car market is recovering evidently. The dealers have begun to trade-in used vehicles, and ACR (Auction Clearance Rate) of car companies’ returned to the prior stage. 

Volkswagen Australia recently observed a 100 percent auction clearance rate of its ex-company cars even though the attendance accounted for just 1/3rd of its workforce. These ex-fleet car auctions are a profitable course of action for dealers to replace their used stock with comparatively newer vehicle models having manufacture warranty. 

ABC News claims, “Used car prices plunged by 14 percent over March and April, but rebounded nearly 11 percent in May.” Additionally, according to Moody’s Analytics-Darium Insight database, which envelopes up to 60 percent of Australian vehicles wholesale market, “Used light trucks and ute prices fell by 12.4 percent over March and April before rebounding 10.6 percent in May.” 

The analysts expect rates to remain relatively steady at current levels soon. Furthermore, Moody’s analysts claim that a significant rise in second-hand car prices will be steep from here on out until a proven vaccine or treatment for Coronavirus is introduced.

Michael Brisson, Auto Economist at Moody’s Analytics states rebound in used car prices, was brought about due to:

  • Used vehicle supply shortage and the substitution effect:

The substitution effect refers to consumers switching between new and used cars. They prefer needs over showcasing social class at times of emergencies and market uncertainties. It is beneficial to the secondhand car market as sales and prices of used cars increase with demand and supply constraints.

  • A decrease in the use of public transport:

People abiding by the lockdown measures refrain from traveling in groups, especially in public transports. They are likely to remain wary of utilizing public transport until a Corona-virus vaccine is produced, which is favorable to sales of used cars. 

  • Low fuel prices:

The price of fuel decreased due to a decrease in global energy demand. This encouraged customers to opt for used cars because their operation is marginally less expensive than newer car models.

European Used Car Market:

Europe’s used vehicle market had significant green shoots of recovery as lockdown measures softened. According to INDICATA’s Market Watch, responsible for tracking the used car sales volume and price changes on a real-time basis, the signs of recovery were recorded in April 2020.

Austria was the 1st country in the EU to soften the lockdown restrictions for the motor industry. Market Watch reported secondhand car sales per day fell from the standard rate of 1,300 to 300 in the lockdown. However, they were pushed to 730 within seven days, which nearly equals to half of the average level after the ease in lockdown.

EU countries like the Netherlands, Sweden, Poland, and Turkey have stabilized their used car market to varying levels. Netherlands sales remain stable around 60 to 65 percent of the typical rates. On the other hand, Poland’s initial plunge stabilized through government support on ease in market restrictions. Meanwhile, Turkey is suffering setbacks due to short-term lockdowns, but its used vehicle market is performing better than most countries in Europe.

Besides, Sweden’s used car market remained the most resilient due to relaxed government measures to combat COVID-19. It operated at 90 percent of its pre-lockdown levels. 

The bottom line is that the prosperous used vehicles market has always been an indicator of healthy economy. As nations are recovering from plummeting sales, we can expect the growth rate for used cars to be higher than the new vehicles.

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