Buyers market drives new car prices below second hand

This seems to defy microeconomic logic but it is a sign of how the balance of power in the new car market has switched to the buyer rather than the seller. New car registrations remain almost a third lower than at the same time last year and car dealerships are so desperate to unload stocks and generate much needed cash flow that their deep discounts on the prices of new or nearly new cars have driven the prices of some models below that of prices for the same vehicles in the second hand market.

Official figures from the Society of Manufacturers and Motor Traders (SMMT) showed that just 313,912 cars were sold in the UK in March. This is down by 30.5 per cent or 138,000 cars on March 2008

The Financial Times reports that

“In recent months used car prices have been climbing in the UK and many other big markets, including the USA, because of a shortage of available stock as new car sales plummet and recession-squeezed consumers shift to second-hand models….The financial squeeze faced by many dealers and the rise of car supermarkets and brokers have also contributed to the downward pressure on new-car prices.”

So it seems that a combination of demand and supply-side factors has caused price deflation for selected models in the new car segment of the vehicle market. But potential buyers need to move quickly - the excellent deals may start to dry up as excess stocks are reduced and (fingers crossed) there are signs of a recovery in consumer sentiment. The depreciation of sterling against the Euro will also lead to a rise in the price of many imported cars.

Market fundamentals should reassert themselves eventually. The consumer editor of Parkers - a renowned source of information on used car prices - is quoted as saying

“A used car is always worth less than a new one, so given time the market will correct itself. In the meantime people should keep shopping around to find the best deals.”

A car scrappage scheme now looks like a done deal when the Budget is announced on the 22nd April. Citroen has pre-empted it by announcing a scheme of their own!