The Construct: Trade and retail used car prices

Robert Donaldson

07 Oct 2019, Blog Post

Over the past three years, used car trade and retail prices continue to show consistency. Through 2017 and for the most part of 2018, the development of average prices was benign. Through both years, data shows evidence of a gently increasing trend brought on by inflationary pressures in the new car market coupled to strong retail demand in the used car market.

Wholesale market analysis

Using Glass’s wholesale market analysis, the following chart shows the average wholesale prices for typical ex-fleet cars aged between 2.5 and 4.5 years at auction. In this example there is an increase in 2017 and early 2018 followed by a flattening in the last quarter of 2018 with a subsequent decline from the start of 2019.

Older cars follow a similar pattern. The following chart illustrates wholesale prices for cars aged over 6.5 years falling significantly over the last six months. For this age group of cars, wholesale prices are now 20% lower than the start of 2019.

Retail market analysis

The illustration below uses Glass’s Live Retail Prices for average retail prices of ex-Fleet cars from 2017 to 2018 shows average prices continuing to rise into 2019.  Nevertheless, from May 2019, average prices are starting to decline whilst just remaining higher than previous years.

The average retail trend in the older car market matches the fleet car market, with average retail asking prices shown in the chart below.

Wholesale vs Retail pricing reaction

Programmed to seek value, used car dealers always want to maximise margin. They will never pay more than is necessary for stock. The wholesale market is therefore acutely sensitive to supply and demand changes and reacts much more quickly than the retail market to these fluctuations.

At the other end of used car equation, dealers are unwilling to discount asking prices as quickly. Here, margins are the main driver to a viable business. It is only as significant undercutting from competitors starts to effect retail sales that dealers will reduce asking prices to compete.

The perfect storm in the used car market

Weaker prices over the past nine months in the wholesale market are to some extent the result of traders reacting to record high wholesale prices. However, this has happened in parallel to weakening demand in the retail market as customers react to Brexit delays, whilst vendors continue to cling to the promised residual forecast values of three years ago. These factors are resulting in wholesale volumes continuing to grow.

Relying solely on either retail data or wholesale data in the used car arena can give a one-dimensional reading on the sector and can easily lead to used car businesses losing money and playing catch up in a fast paced ever evolving market. Glass’s data provides instant insight into both sides of the market enabling users to fine-tune their buying and selling strategies whilst delivering their required margins.

About the author

Robert Donaldson

Robert DonaldsonUK Car Editor

Born in Acton, London, Robert worked for a number of blue chip organisations including Compaq, British Airways and 3M. Of interest, Robert also owned a repair garage with his brother in the 90s with whom he restored older cars, before joining Glass’s in 2006.