The number of second-hand cars changing hands has dropped to the lowest level in six years as dealers’ stock of motors runs thin on the back of unprecedented demand, trade body figures revealed today.
With an increasing number of drivers turning to the used market rather than waiting months for delayed new cars to be delivered, dealer stocks of second-hand vehicles have shrunk as buyers snap them up quicker than ever before.
Dwindling availability and growing competition for pre-owned models has sent used car values spiralling in recent months, pricing some customers out of buying the vehicles they want.
Figures released last week claim the average price paid for a second-hand vehicle has risen from £13,973 in May to £16,878 by the end of October – the highest it has ever been according to records held by Auto Trader.
Some year-old cars – described as ‘nearly new’ models – are in such high demand that 22 per cent are being advertised for prices above what they cost from showrooms brand new.
Official statistics published by the motor trade body today show that 2,034,342 used vehicles changed hands in the previous quarter, down six per cent on last year and two per cent on pre-pandemic figures from 2019.
Purchases were the weakest for a three-month period since 2015, with declining sales in every month, down five per cent in July, six per cent in August and eight per cent in September.
The decline is almost entirely due to a lack of vehicle stock and sky-high advertised prices, both of which have been triggered by the short supply of new cars entering the market.
Car makers’ ongoing difficulties securing semiconductor chips globally for the production of new models means outputs have slowed dramatically since the pandemic first hit.
With manufacturing not at full capacity, delivery dates for brand new cars have been delayed, with some customers being told they could wait for over a year for orders to arrive.
Motorists unwilling – or unable – to wait for such extended periods have instead turned their attention to the used market and seen demand soar to never-before-seen levels.
Video: Lowest October car sales since 2002 (Sky News Australia)
Auto Trader reported last week that the average price of a pre-owned car on its website had risen for a 19th consecutive month in October, up 25.6 per cent year-on-year – a record leap in values, and motors were selling 11 per cent faster than they were in the same month in 2019.
The jump in demand, enquiries and rapid sale times has taken a big toll on stock, with retailers having 12.2 per cent fewer motors advertised than they did two years ago.
Commenting on the figures released this morning, Mike Hawes, chief executive at the Society of Motor Manufacturers and Traders, said: ‘Given the circumstances, with the global pandemic causing a shortage of semiconductors needed to produce new vehicles, undermining the new car market, used transactions were always going to suffer too.
‘This is particularly worrying as fleet renewal – of both new and used – is essential if we are to address air quality and carbon emissions concerns.’
Seán Kemple, managing director at Close Brothers Motor Finance, said the outbreak of Covid-19 and resulting semiconductor shortages had caused a ‘huge domino effect’ for dealers, and said it could be a long road ahead before things go back to normal’.
‘In such an unusual and uncertain environment, it will be important for car dealers to keep their ear to the ground and be as adaptable as possible,’ he added.
‘That could mean careful consideration about the stock sold on their forecourt, or how they are pricing their vehicles, and being prepared to have to respond regularly to volatility.
‘We can all hope to see the supply squeeze ease up next year, but in the meantime, customers will rely on the trusted advice of dealers when shopping around for their next car.’
Jim Holder, editorial director at WhatCar?, adds: ‘As new car stock availability declines, this will translate to reduced stock in the used market.
‘Already prices on some used models have grown by more than 20 per cent, and the drop of 6.2 per cent in used sales in Q3 this year points to a potentially tricky 2022 ahead, as the microchip shortage for new cars is expected to continue into next year.’
The SMMT pointed out that demand for used examples of both battery electric and plug-in hybrid vehicles had continued to grow in Q3, mirroring increasing sales records on the new market.
The Ford Fiesta retains its crown as the best-selling second-hand car, just ahead of the Vauxhall Corsa and VW Golf in Q3 of 2021.
In terms of regional sales, the South East saw the most used cars change hands in the three months from July to September.
Semiconductor chip shortage explained
Why is there a chip shortage?
A shortage in microchip supplies is crippling production lines across various industries right now – none more so than car factories.
Computer chip makers – like all other manufacturers – temporarily shut down operations when the virus first hit at the beginning of 2020.
However, massive demand from tech companies triggered a quick restart to try to fulfill sky-rocketing orders for laptops to work from home, as well as tablets, games consoles and other devices to keep people occupied during lockdown.
Though one product type that didn’t see demand return to normal levels with such an immediate effect was new cars.
With auto factories closed, showrooms locked and makers fearing a fall in big-item spending and a general tightening of consumer purse strings, automotive budgets were revised and orders for car parts – including electronics – put on hold.
Despite all this happening over 20 months ago and production outputs of chips now back to more normal levels, car makers can’t get their hands on enough of them and backorders for cars have mounted up. This is causing headaches for anyone with intentions to purchase a zero-mile motor this year.
Are new cars really so reliant on computer chips?
While you might think they’re only used in computers and other tech products, every new car uses microchips. And some of them use a lot.
They control a number of features in modern vehicles, from safety devices like airbags to infotainment screens and automatic parking assistance.
It means individual cars – especially lavish, tech-heavy models – can use over 40 chips from varying manufacturers.
It gives you an indication of just how reliant car makers have become on these components.
While some semiconductors needed in vehicles have been around for ages and are ‘old-hat’ in the world of chip technology – like those used for controlling the ABS braking or monitoring the exhaust emissions – others required to power complex high-definition digital displays, manage assisted-driving features and to help mitigate crashes are far more advanced.
The latter are also in highest demand.
And producing specialist chips isn’t straight forward – or cheap.
Factories making them need to be ultra-clean, completely dust free and void of any static electricity. And for these reasons the production process isn’t what you’d call lightning fast.
Add to the equation that cars aren’t high on chip suppliers’ priority lists and you can begin to understand why the sector is being hit so hard.
With tech products, like smartphones and televisions, having shorter sale and life-cycles, brands developing and producing them at pace are placing the biggest orders for the latest, most expensive – and most profitable – chips going.
Given that these orders are more lucrative for semiconductor producers, car firms are being bumped down the list for the parts.
Delivery delays of up to A YEAR for some new cars
The shortage of chips has been crippling plenty of auto brands and has come at a time when pent-up demand for new cars is as high as it has been for years following months of covid-enforced showroom closures.
For some, assembly lines have ground to a halt:
– Jaguar Land Rover was forced to pause production of vehicles at its UK and Slovakian car factories, with the UK maker telling customers they may need to wait over 12 months for orders of some of its in-demand models.
– Mini temporarily shut its Oxford plant due to chip issues.
– BMW said it has had to change tack due to the shortage.
– Volkswagen warned of worsening supply woes having already built over 100,000 fewer cars in 2021.
– Toyota, the world’s biggest vehicle producer, says it has been forced to reduce global outputs by 40 per cent since September after its stockpiled reserves of chips depleted.
– Daimler has also dialled back its delivery expectations due to the lack of supplies.
When will the semiconductor chip shortage end?
Car bosses, including Stellantis’ Carlos Tavares, fully expect the chip shortage to drag on into 2022.
The parent company of brands including Fiat, Peugeot, Citroen, Alfa Romeo and many more was forced to pause production at eight of its 44 global factories in the first quarter of the year – and as a result produced 190,000 fewer cars than originally projected.
‘The semiconductor crisis, from everything I see and I’m not sure I can see everything, is going to drag into ’22 easy because I don’t see enough signs that additional production from the Asian sourcing points is going to come to the West in the near future,’ Tavares said.
That means delivery delays for new cars could get even longer and average prices of used motors might remain as high as they are today, if not rise further.