28 Mar 23

Used car prices are looking for a ‘new normal’

When will we know if we’ve hit a ‘new normal’? It’s complicated. About four years ago, we had no idea of the various major shocks that would follow: pandemic, supply chain crisis, war.

Emmanuel Labi, CEO of Paris-based car valuation specialist Autobiz, puts it this way: “2022 was a special year, with low stocks and high prices. Now, we see used vehicle prices across Europe slowly dropping back to normal. Except that we don’t know when this movement will stop, and what the ‘new normal’ will be.”

Other crises compounding the problem

“Only if we assume there won’t be any other crises of similar size and impact can we try to predict how Residual Values (RVs) will evolve in the near future – notably, with a slow recovery from 2023 to 2025, when we should be back at pre-pandemic price levels for used cars.

Meanwhile, remarketers must play the waiting game: “Even if, miraculously, we would now suddenly have the same volume of new cars as in 2019, it would still take an entire year for the first ‘nearly new’ used cars to come onto the market and have an impact on prices.”

Increasingly unaffordable

But whatever the eventual price level for RVs, new car prices remain stubbornly high, and increasingly unaffordable for a growing slice of consumers.

“There are two reasons why this is the case. First, if you look at EVs, they are a lot more expensive than your average diesel car. And second, the major OEMs have learned from the past few years that they can maintain profits by charging higher prices for lower volumes.

And by moving towards the agency model, OEMs will be better placed than ever to control the ultimate price of their product.”

Different kind of market

As a result of high new car prices, demand for two- to four-year-old used cars will remain strong. “And so, we see a different kind of car market emerge”, says Labi. “No longer a market dominated by new cars, but by new cars and young used cars.”

In other words, the share of the market that consists of new cars being sold to private consumers (now between 10% and 20%) will continue to shrink. And the share of young used cars will grow.

With prices for young used cars likely to remain high, the big lease companies who benefited so handsomely from the windfall profits on their used cars – LeasePlan, Athlon and ALD Automotive among them – need not worry that those high prices will collapse.

Battery range And EVs?

“Overall, RVs will remain fairly stable”, says Labi. “Even if, in some countries, the domestic supply of used EVs is limited, as is the case in Germany or Italy.”

Even Tesla’s dramatic price reduction earlier this year has failed to impact the RV of used Teslas significantly. Demand simply remains higher than supply. The only real factor in determining used EV RVs is battery range. If a newer version comes out with a significantly larger range, the RV of the older model will suffer. We see this clearly with the Renault Zoe, for example. The oldest model had a range of 80 km, a later model 200 and the newest one 400 km. RVs are clearly related to those ranges.


THIS ARTICLE IS PART OF OUR REMARKETING E-BOOK ON The Supply & Demand outlook and its impact on Residual values.

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