How can the same product be cheaper to buy new than second-hand?

Here’s a pricing conundrum. Which product is now sometimes available for a lower price if you buy brand new than if you buy the same product second-hand?

The answer, according to this piece in the Times, is a car.

The article quotes data from Parkers (an authoritative source on car prices) which highlights ten car models where the new car price is lower than the average second-hand price.

This doesn’t seem to make sense. Or does it?

The answer lies in who the seller is.

New cars are sold by the dealer network. As demand for new cars has slumped in the last 6-9 months, car manufacturers and their dealers have been left with substantial stocks of unsold vehicles. Even after taking measures to reduce factory production, those excess stocks still need shifting. So the dealer network is offering substantial discounts and other price-based incentives for customers to buy new. The new car market has excess supply.

On the other hand, the used car market has excess demand for some models. There is a shortage of some models, but a good flow of customers searching the used-car websites and other distribution channels in search of what they expect will be better value. If only they took the time to check out the new car price at the dealer.

This unusual interaction of demand and supply can’t last forever. But hopefully it will hand around for a few more weeks whilst I complete my search for the next family car.