The average price of a five-year-old vehicle increased by 0.17% from the previous month, according to Heycar’s December 2022 Used Car Price Index. This marked the fourth consecutive month of growth, following a 1.78% increase in October and a 5.57% increase in November.
The global semiconductor shortage, which has disrupted the supply of new cars in the UK, is believed to be a contributing factor to the rise in used car prices.
The market for three-year-old cars has shown a different trend. After experiencing a 4.55% increase in value in October (the second highest increase this year after a 13.66% rise in August), the average value of these cars fell by 0.61% in December, following a 2.17% reduction in November.
However, compared to 2021, the current market for used cars has seen a decrease in values, as the average asking price for a three-year-old car is down 3.86% from last year, while the average asking price for a five-year-old car has decreased by 3.82%.
What is the reason for used car prices increasing?
The high prices for used cars can be attributed to the current shortage of new vehicles on the market, with the global shortage of semiconductors, which are essential for powering the infotainment systems, computers, and digital displays of modern cars, causing disruptions in the supply of new cars.
Before the COVID-19 pandemic, car manufacturers typically obtained semiconductors from external suppliers.
However, the global lockdown measures put in place to contain the virus led to the closure of many of these manufacturing plants, resulting in a backlog of semiconductor orders and prolonged waiting times for new cars.
The delays in the production and availability of new cars have led to a decrease in the number of used vehicles entering the market. As people who are financing or leasing their cars through PCP agreements hold onto their vehicles for longer, there are fewer used cars available to meet consumer demand, and it is this scarcity that has caused used car prices to reach the levels they have.
So, when will used car prices drop?
Although manufacturers are addressing the semiconductor shortage by sourcing their own parts and constructing dedicated plants for these components, it is difficult to predict when the supply of new cars will return to normal levels. In the meantime, used car prices remain robust.
According to the December 2022 data, the average asking price for a five-year-old car increased by 0.17% from the previous month. On the other hand, the average asking price for a three-year-old car decreased by 0.61%, but it is too early to determine if this marks the beginning of a trend. Despite these fluctuations, used car prices overall remain strong in the current market.
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