As FT Alphaville reported last week, used cars around the world are experiencing unprecedented price appreciation.

We recently spoke with Derren Martin at Cap HPI, a UK-based market valuation expert, about the factors motivating the inventory shortages behind the price rises.

The UK market, according to Martin, has been experiencing a perfect storm of both supply and demand-side challenges. On the demand side, he said, it was being hit by the bulk return of buyers who had put off purchases until after lockdown as well as those who now wanted to upgrade their cars with their Covid savings.

On the supply side the market was being put under pressure by extended wait times for new cars due to the semiconductor shortages out of Taiwan. But, as Martin added, there was also a general shortage of stock due in the system due to fewer new-car registrations over 2020 and far less de-fleeting by rental companies.

What really caught our eye, however, was the following chart from Cap HPI’s latest Car Market Overview:

Yep, prices are anticipated to rise 6.7 per cent over the course of May (as indicated confusingly under the June heading), in a market where depreciation is usually the norm. For context, the largest movement up during a single month before this year was a 1 per cent rise in February 2018.

In nominal terms that amounts to about £825 per car, reflecting inventory that is about three years old.

So far this year, one-year old cars have not increased to quite the same level in percentage terms, going up 5.6 per cent month on month in May, but were clocking in higher average nominal rates of about £1,200 due to higher overall values.

Martin also told us buyers weren’t discriminating against diesel cars, as might otherwise be expected because of upcoming environmental restrictions. In fact, traditional fuel-types (petrol and diesel) were tending to outperform electric vehicles, although hybrids were also experiencing a resurgence.

From the Cap HPI note:

And it seems there was little variation between manufacturers:

Given the market action, some have wondered why retail prices have been much slower to catch up with the price trends than wholesale ones.

According to Cap HPI, this may be because dealers have been slow to pass on the price hikes to customers. Yet, this could be changing shortly:

One thing is for sure: it’s an extraordinary time in the market.

Related link:My kingdom for a used car - FT Alphaville