In this video we look at the economics of the surge in prices of secondhand cars.
It is a good example of the price mechanism in action where we can model changes in prices using supply and demand analysis.
Used cars dominate the market in Britain. Motorists in the United Kingdom bought some 10.3 million cars in 2019, almost eight million of which were used cars.
Although most transactions involving second hand cars now start with an online search, the majority of used cars are still bought and sold through dealerships But there is change afoot not least with huge investment in a raft of new e-commerce online second hand car businesses such as Cinch, WeBuyAnyCar and Cazoo.
But something quite remarkable seems to be happening right now in the used car market
Research by the motoring group the AA suggests the price of the UK's most popular cars have increased up to 57% since 2019. The average asking price for used cars has shot up 15.2 per cent year on year, resulting in a sudden gain in value for most vehicles, according to Auto Trader, an automotive advertising business.
Normally cars start to lose value as soon as you drive a new car away from the dealer’s forecourt!
The pace of the price increases mean that some used cars have gained in value despite getting two years old.
For example, with some used car models in strong demand, a five-year-old model currently costs 15 per cent more than a three-year-old car did in 2019.
Why are secondhand (used) car prices rising?
Why are prices for new cars rising?
The second-hand car market is a great example of inter-relationships between different markets. Used cars are a substitute for buying a new vehicle. When prices of new cars are increasing, some buyers will decide to purchase a used vehicle instead.
But there are big information risks involved!
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