Residual values of cars in the UK have enjoyed two years of exceptional growth and consistent strength. Much of this has been down to the lack of new car availability driving used vehicle demand and used vehicle values.

But it appears that this situation is changing. With the cost of living soaring against rising inflationary pressures, consumer appetite for big ticket spending is on the wane.

BCA auction company, part of the Constellation Automotive Group, was largely unconcerned about the dip in values in March’s used car values. These fell by £595 (5.9%) compared with February, it said, noting that prices remained well ahead year-on-year, up by £1,391 (17.3%) against March 2021.

Nevertheless, it did add that “average values closed out the month in a more negative position.”

BCA UK COO Stuart Pearson said, “There is no doubt that things have got tougher for used car retailers due to the pressures on consumers’ wallets and that is bound to have an impact in the wholesale sector.”

However, Pearson added that, with March 2022 recording the weakest performance for new car sales since 1998 with UK new car registrations falling by -14.3% to 243,479 units (source: SMMT), there was no need for panic.

“Diminished supply should ensure that used values remain fairly resilient, although there is definitely room for some further balanced corrections over the next couple of months.”

Cox Automotive, on the other hand, was less optimistic. Philip Nothard, insight & strategy director at Cox Automotive International which has Manheim in its stable, said: “We do not expect performance to drop off a cliff, but could the bubble be about to burst? Current signs indicate it could be.”

Nothard pointed to weakening consumer confidence, taxation hikes and the huge rise in the cost of living as having an inevitable impact on the used car market.

Cox Automotive indicated that it expected a further decline in values during the rest of Q2 thru Q3.

“What’s clear is that we won’t see values drop off a cliff,” he added. “Used vehicle values are still at a significant high point compared to the pre-pandemic market, and the effects will be different across all makes, models, and ages. For example, there is still high demand in the sub £5K and £10k sector, as well as for higher-priced vehicles, while the mid-market is feeling the most pressure as mass-market buyers tighten their belts to compensate with the rising cost of living.”

In the LCV market, Cox Automotive said price robustness continued, with commercial vehicles currently exceeding +12% (£1,249) more than in 2021, while age and mileage dynamics continued to rise. Vans with Euro 5 engines saw prices +71% (£2,252) compared with pre-pandemic and Euro 6 costing +58% (£4,366) on average.

However, Matthew Davock, director of commercial vehicles, warned that the superheated market of the last 18 months was losing some of  its buoyancy. “Market and business confidence shows signs of slowing as buyers adopt a more cautious approach,” he warned.

Overall Q2 would see values soften further but overall prices would remain robust Davock added.