Used cars, which pushed up UK inflation during the pandemic, are now getting cheaper as Britons sell their vehicles in response to soaring fuel costs and a broader squeeze on household budgets.
Inflation hit a 40-year high in June, driven by products ranging from motor fuel to eggs, but prices for second-hand cars fell 2.5 percent, according to Office of National Statistics data. That marked a fifth consecutive monthly drop and the longest losing streak since 2017.
Prices took off in 2020 when consumers flush with lockdown cash sought used cars as an alternative to public transport.
At the same time, semiconductor shortages and snarled supply chains made new vehicles more scarce. Now, with wages rising at a slower pace than inflation and fuel costs surging, second-hand cars are becoming a luxury.
“People seem to be looking more at the cost of living,” said Jason Barlow, director at car dealer St Leonards Motors, which sells more than 4,200 used vehicles a year across 12 locations in England. “They are making that conscious decision of ‘do we really need a car anymore?’”
The market for used cars serves as another indicator that falling real incomes are squeezing households and hurting consumer confidence, just as the Bank of England is walking a thin line between taming inflation and triggering a recession.
Sales of used vehicles fell 13 percent in June from a year earlier, according to Indicata, a data and analytics firm. It’s not just that people stopped buying cars, some are also selling the ones in their garages and switching back to public transport. Others are ditching gasoline or diesel cars for electric vehicles.
Those who are buying a second-hand car are favoring lower-priced models, for which demand has been relatively resilient, according to Barlow.
The decline in prices also marks a return to pre-COVID trends. Used car values spiked in Britain last year more than in other European countries, in part because right-side driving in the UK prevented cross-border inflows from left-side driving neighbors, said Andy Shields, business unit director at Indicata.
Last year’s supply-chain constraints are also starting to ease, which should help increase supply, according to Urvish Patel, associate economist at the National Institute of Economic and Social Research.
Still, some of the issues that drove up used-vehicle prices, like chip shortages and production lags, remain.
“What surprises me is actually how difficult it is still to get hold of a used vehicle,” Barlow said. “Whilst we have seen a decline in values, we still find it difficult to source cars now.”