Q4: the used car and financing outlook
Dealers are adapting to the ever-changing operating landscape, with used car volumes for the year now expected to be circa 6.74M units, according to Cox Automotive. Encouragingly there is consumer demand. In part, this is a continuation of the impact of new car shortages. There is also anecdotal evidence pointing to how people are adapting to the cost of living crisis by trading down to smaller and cheaper cars. It is a move being joined by an increased focus on EVs or all variants.
Demand for our range of stock funding options remains strong. The demand is being driven by dealers switching from other funding options, which were more costly or replacing government-backed loans utilised by dealers during the lockdown periods. Our stocking provides clear sight of the impact of consumer demand for used cars and continuing wholesale supply limitations, with values continuing to hold up overall. As noted previously, the demand for EVs and their scarcity means their values are particularly strong, while ICEs are seeing slight declines, particularly in higher value stock.
The Bank of England has introduced successive rises to its base rate to counter rising inflation. The latest increase has seen this rate rise to 2.25% from 1.75%. It is the highest rate since November 2008. However, it is unlikely to be the last such rise, and the financial markets suggest the base rate could climb to 6%. To take a positive from this gloomy forecast, upper rates forecasts have been reined in following changes in upper-level tax plans.
According to Moneyfacts data published at the end of September, average unsecured loan rates hit their highest in six years; more rises are widely expected. All lending forms are set to see further rate increases based on the higher costs of money that exist in the money markets.
Another pressure point in lending for all regulated firms, including dealers and brokers, will be the regulatory need to ensure any new loans are affordable for customers. After an extended low inflation and low-interest period, this step will be essential to ensure people do not over-commit themselves.
The overall conclusion is that the used vehicle market looks set to flatten in the next few weeks. As we move towards the tail-end of the year, we can expect the usual slowing in transactions. The tailwinds of low consumer confidence and rising interest rates are likely to see used car demand focus on the cost of purchase and use.
Debbie McKay, Commercial Director of Motor Sales
Press release issued by MotoNovo Finance, October 2022