Is the used car market getting back to "normal"

[Bobby Dazzler]

Exactly, both Poulter and Tim, impressive, obsessive workaholics that they are, can weather this change, but interest rates are certainly about to blow the fluff off some of the top end. Which is not a bad thing. Better a gentle adjustment than a crash as the days of "free money" come to an end.

Even with a $25 million Ferrari collection, like Ian's, probably half of his net worth, it must be a wee bit stressful to see the days of easy capital growth coming to an end.

Still, as the lawyers say "You can't take it with you. (Only your wife can.)"

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Last week I listened to a podcast by The Intercooler, and they were talking about a quarterly “luxury” car finance market report issued by JBR Capital who sponsor them.

Whilst described as “luxury” it really means “expensive” because it includes all types of expensive cars including supercars, SUVs, EVs, as well as traditional luxury cars.

The report looks at the finance deals that JBR Capital have actually done during the period (I believe it might be a quarterly report), and offers insights and narrative.

During the podcast Andrew Frankel and Dan Prosser mused on those insights, like the average value of cars financed (£105k) average salary of borrowers (£155k), etc.

It said that there were hints that luxury car finance market “might” start cooling off because the dramatic growth in recent years has plateaued for the first time.

They mused over why that might be for a while. but what stood out was that they barely mentioned interest rate increases at all - if they did then it was in passing.

I suspect that the market has already dipped. The total amount lent may have been increasing , but that’s in part because the cost of the cars has increased significantly too.

I would imagine that even their wealthier clients will be thinking differently about how much they borrow, as even if they can easily afford it they may not think it’s worth it.

I would be very surprised if the total borrowing isn’t already falling. As you say let’s hope that it’s a gentle market adjustment rather than Armageddon.

 

[Red C220]

Exactly, both Poulter and Tim, impressive, obsessive workaholics that they are, can weather this change, but interest rates are certainly about to blow the fluff off some of the top end. Which is not a bad thing. Better a gentle adjustment than a crash as the days of "free money" come to an end.

Even with a $25 million Ferrari collection, like Ian's, probably half of his net worth, it must be a wee bit stressful to see the days of easy capital growth coming to an end.

Still, as the lawyers say "You can't take it with you. (Only your wife can.)"

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The entry level supercar market has taken a bath. The £100K-£150K level that if you were sensible buying and choosing the right car could almost be depreciation free motoring. That no longer exists (even in Porsche bubble world).

If I wanted out of my car right now for any reason I'd have to take a huge hit. Fortunately I bought it for long term so it's not an issue for me. But people who bought with 10% deposits on Lease purchase arrangements will now be finding themselves in negative equity. Substantial negative equity.

Conversly, the higher end has never been more boyant. The Ian Poulter level and to a degree shmee. As usual, the wealthy are becoming more wealthy as it's now easier for them to make passive low risk cash returns in this normal interest rate world in which we now live and the poor are getting poorer.

But it's slightly different this time, the middle and upper middle classes are getting squeezed with a combination of high inflation, a return to normal borrowing costs and punitive taxation. In all the years I've owned a business (Co Director - Ltd companies) I've never been squeezed to the extent that I am being now. To a degree that there is very little (read that as No) incentive for me to invest any time and money in my own business at present. That same problem extends to the UK as a whole. There's very little incentive for anyone outside the UK to invest in the UK right now given that we have a conservative gov with socialist taxation and no real viable alternative.

At least there's unlikely to be a housing crash though as the gov underwote (pre empted a bail out) that already by stealth in the last mini budget via loans in universal credit for mortgage interest to stop repossessions.

The car market is a tough place to be right now, new or used.

 

[Dryce]

Lots of people I know in the car trade saying its VERY quiet (especially on new....hence all the zero APR offers around that have not been seen for years). As @fabes said....only cars at sensible prices are moving.
Caravan and motorhome prices are going the same way.

I'd say socially it's very quiet. Normally amongst groups of friends and neighbours and colleagues at any time somebody is thinking about a new or replacement car. But cars just don't come up in discussion very often these days.

 

[MikeInWimbledon]

Last week I listened to a podcast by The Intercooler, and they were talking about a quarterly “luxury” car finance market report issued by JBR Capital who sponsor them

Interesting. I’ll check it out.

I follow Intercooler weakly rather than weekly for two reasons. Andrew knows his stuff but Lord he can disappear up his own fundament when he gets going. And that sponsorship does make them puff finance as some kind of “investment” which makes little sense.

I was buzzing down the M4 yesterday, at a steady 70mph, Officer, when a Mk2 Jaguar in the same colour as my old one, buzzed past at 80 with its distinctive exhaust smell.

It reminded me just how rare it is to see classics being used.

And how limited the market for pre-1980’s cars must be - even though they are ULEZ exempt. People who owned them are literally dying out.

 

[Bobby Dazzler]

Interesting. I’ll check it out.

I follow Intercooler weakly rather than weekly for two reasons. Andrew knows his stuff but Lord he can disappear up his own fundament when he gets going. And that sponsorship does make them puff finance as some kind of “investment” which makes little sense.

I was buzzing down the M4 yesterday, at a steady 70mph, Officer, when a Mk2 Jaguar in the same colour as my old one, buzzed past at 80 with its distinctive exhaust smell.

It reminded me just how rare it is to see classics being used.

And how limited the market for pre-1980’s cars must be - even though they are ULEZ exempt. People who owned them are literally dying out.

View attachment 145151

Yes agreed on both Frankel and sponsorship. As far as automotive podcasts go though it’s one of the better ones and I do enjoy it. It would be even better if dialled back on both the pomp and pompous scales.

My personal favourite is Collecting Addicts (nee Collecting Cars) as it’s very much like the type of conversation I’d have with my closest friends in the car on boys night out (not that they happen really any more).

 

[MikeInWimbledon]

Yes agreed on both Frankel and sponsorship. As far as automotive podcasts go though it’s one of the better ones and I do enjoy it. It would be even better if dialled back on both the pomp and pompous scales.

My personal favourite is Collecting Addicts (nee Collecting Cars) as it’s very much like the type of conversation I’d have with my closest friends in the car on boys night out (not that they happen really any more).

As they say on "Odd Lots," we should do an episode on this.

I'd bid 1) My Week in Cars; 2) Smith and Sniff; and 3) Collecting Cars....

Matt and Steve are just two AI Bots configured to play back each listener's preferences. In my case: why are cars so big and heavy; why buy the latest stuff; why run an EV unless its free; do car fans really enjoy silent cars; cars are meant to be used, not stored; isn't it great just to go for a drive in the countryside....

 

[Bobby Dazzler]

The entry level supercar market has taken a bath. The £100K-£150K level that if you were sensible buying and choosing the right car could almost be depreciation free motoring. That no longer exists (even in Porsche bubble world).

If I wanted out of my car right now for any reason I'd have to take a huge hit. Fortunately I bought it for long term so it's not an issue for me. But people who bought with 10% deposits on Lease purchase arrangements will now be finding themselves in negative equity. Substantial negative equity.

Conversly, the higher end has never been more boyant. The Ian Poulter level and to a degree shmee. As usual, the wealthy are becoming more wealthy as it's now easier for them to make passive low risk cash returns in this normal interest rate world in which we now live and the poor are getting poorer.

But it's slightly different this time, the middle and upper middle classes are getting squeezed with a combination of high inflation, a return to normal borrowing costs and punitive taxation. In all the years I've owned a business (Co Director - Ltd companies) I've never been squeezed to the extent that I am being now. To a degree that there is very little (read that as No) incentive for me to invest any time and money in my own business at present. That same problem extends to the UK as a whole. There's very little incentive for anyone outside the UK to invest in the UK right now given that we have a conservative gov with socialist taxation and no real viable alternative.

At least there's unlikely to be a housing crash though as the gov underwote (pre empted a bail out) that already by stealth in the last mini budget via loans in universal credit for mortgage interest to stop repossessions.

The car market is a tough place to be right now, new or used.

Anyone who has been around the block at least once really ought to know that expensive cars depreciate hardest of all despite the peculiarity of the wider market for the last couple of years, and the supercar market over the last decade.

The lack of depreciation or even appreciation may have encouraged some people who can just afford the supercar to take a risk and have a big balloon at the end, not expecting there to be a shortfall to make up and without the protection offered by a PCP in this regard.

Hopefully the impact will not be too great.

 

[Red C220]

Anyone who has been around the block at least once really ought to know that expensive cars depreciate hardest of all despite the peculiarity of the wider market for the last couple of years, and the supercar market over the last decade.

The lack of depreciation or even appreciation may have encouraged some people who can just afford the supercar to take a risk and have a big balloon at the end, not expecting there to be a shortfall to make up and without the protection offered by a PCP in this regard.

Hopefully the impact will not be too great.

It's not linear across all brands though. Some careful shopping and a bit of research can put you in something that can almost be depreciation free, yet at the other end you have absolute shockers like the Taycan. We really had a lucky escape from ours getting out with overs. (luck not judgement).

Had we kept them for 12 months they would have shed so much value as the market changed that they would have actually cost more to do 10,000 miles in 12 months than my V12 Ferrari (and yes that includes fuel and servicing) such was the vast drop in value of EV residuals (50%-60% in year one on a Taycan now).

You also have to consider new car prices for premium cars now. I was listening to the Behind the Glass podcast earlier and one of the new cars they discussed was the new M5 Touring. I have no doubt it's going to be awesome. But list starts at high £130K and with a few must have options it's £150K otr. £150k for a BMW 5 series touring, albeit a very capable one. That's a huge amount of money and after an initial flurry to be first it's likely to shed money at an astronomical rate. Almost as fast as anything built by Alpina!

 

[Darrell]

(50%-60% in year one on a Taycan now).

Taycans are losing 50-60% of their of their value in the first year?? That’s incredible.

 

[Red C220]

Taycans are losing 50-60% of their of their value in the first year?? That’s incredible.

Not just Taycans but EV's have taken a bath across the board.

My lovely lady has a 12 month old VW ID3, covered just over 4000 miles. Cost new a little over £40K she's being offered low to mid £20k's in part ex for something new.

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[Darrell]

Not just Taycans but EV's have taken a bath across the board.

My lovely lady has a 12 month old VW ID3, covered just over 4000 miles. Cost new a little over £40K she's being offered low to mid £20k's in part ex for something new.

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How much was this when it was new?

2021 Porsche Taycan 560kW Turbo S 93kWh 4dr Auto Saloon Electric Automatic | eBay

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Or this one?

2020 Porsche Taycan 560kW Turbo S 93kWh 4dr Auto Saloon Electric Automatic | eBay

Find many great new & used options and get the best deals for 2020 Porsche Taycan 560kW Turbo S 93kWh 4dr Auto Saloon Electric Automatic at the best online prices at eBay! Free delivery for many products.

www.ebay.co.uk

I didn’t realise they were so expensive. My bro in law is looking at one for next July when the lease expires on his Merc EQC.

 

[Red C220]

The Turbos S was a long way north of £150K depending exactly what you put on in options, so you could easily see £170K+ if you were silly with the option list.

They are also very optimisitc asking prices. Porsche dealers won't take them into stock now unless it's silly low values. The 4S was the sweet spot. Our two were both £110K we got rid of them both after 4 months.

 

[Darrell]

The Turbos S was a long way north of £150K depending exactly what you put on in options, so you could easily see £170K+ if you were silly with the option list.

They are also very optimisitc asking prices. Porsche dealers won't take them into stock now unless it's silly low values. The 4S was the sweet spot. Our two were both £110K we got rid of them both after 4 months.

Crazy money. I’ve not seen many and I now know why.

 

[Bobby Dazzler]

Not just Taycans but EV's have taken a bath across the board.

Wasn’t it (almost) forever this way though?

I’m not sure it’s an EV thing. Artificial influences on market values in recent years - since EVs have been truly main stream -have changed rapidly. Supply chain issues, new car availability, and availability of used EVs, new car prices and interest rates all changed quickly, together and in the same direction, so the correction has been swift.

Luxury saloons have always depreciated heavily - XJ, S-Class, 7-series - and 50% first year depreciation would always have been par for the course. The next class down would have fared slightly better, but not that much. What will hit pockets harder is that there would have been no - or very little - discount on the rapidly increasing list prices in recent years.

It wasn’t just posh stuff. For more than two decades, Used Car Supermarket forecourts up and down the land were awash with nearly new mainstream and even premium cars at close to half price after 12-18 months. They were full of Clios, Corsa, Insignias, Mondeos, 3-series, That was after the retailers margin, so part-exchange or trade price would be lower still.

Looking at three different real examples of 2018 cars which all reached 18 months old prior to lockdown starting. I won’t go into the details but I choose all three because I still own them, and they span the Mercedes-Benz Group AG portfolio in that year. All three had lost around 50% of their value by 18 months, Ironically they’re worth the same or more after 60 months.

EVs haven’t been readily available on that kind of market place until now.

 

[MikeInWimbledon]

Not just Taycans but EV's have taken a bath across the board.

My lovely lady has a 12 month old VW ID3, covered just over 4000 miles. Cost new a little over £40K she's being offered low to mid £20k's in part ex for something new.

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But there’s three things going on here:

The usual bid-ask spread. If she’s being bid at £22k, it’ll be retailed out at £26k, same as usual.

There’s this enormous tax break that’s given to company EV purchases, which subsidises new car sales, and creates that glut on the market.

And finally, sadly, the id3 has had a problematic launch, with reliability and software issues that have dented its initial charm and promise. So the Id3 has seen defectors to Korea and even France as new products came to market.

 

[MikeInWimbledon]

My neighbour has taken a bath on his two year old Taycan, after putting barely any tax subsidised miles on it. But it’s really all first owner depreciation and, to my eyes, comparable to the hit that Panamera owners saw. He talks -vaguely- about his 4S being worth £70k retail, 30% down, after two years, so presumably £60k trade-in, 40% down.

It’s a stunningly impressive vehicle. I remember being wowed by them at Zuffenhausen back in late 2019. But, at the end of the day it’s still a four door Porker, a silent high performance motor with a restricted second user market waiting for it.

It’s never going to be a 911 or Ferrari. Too many doors.

 

[Red C220]

Wasn’t it (almost) forever this way though?

I’m not sure it’s an EV thing. Artificial influences on market values in recent years - since EVs have been truly main stream -have changed rapidly. Supply chain issues, new car availability, and availability of used EVs, new car prices and interest rates all changed quickly, together and in the same direction, so the correction has been swift.

Luxury saloons have always depreciated heavily - XJ, S-Class, 7-series - and 50% first year depreciation would always have been par for the course. The next class down would have fared slightly better, but not that much. What will hit pockets harder is that there would have been no - or very little - discount on the rapidly increasing list prices in recent years.

It wasn’t just posh stuff. For more than two decades, Used Car Supermarket forecourts up and down the land were awash with nearly new mainstream and even premium cars at close to half price after 12-18 months. They were full of Clios, Corsa, Insignias, Mondeos, 3-series, That was after the retailers margin, so part-exchange or trade price would be lower still.

Looking at three different real examples of 2018 cars which all reached 18 months old prior to lockdown starting. I won’t go into the details but I choose all three because I still own them, and they span the Mercedes-Benz Group AG portfolio in that year. All three had lost around 50% of their value by 18 months, Ironically they’re worth the same or more after 60 months.

EVs haven’t been readily available on that kind of market place until now.

I've highlighted something in your post above that is probably the most responsible for what we're seeing.

List prices are now bonkers. The sheer volume of "normal" cars with 6 figure RRP's or approaching that number is astonishing.

That's all ok when it costs next to nothing to borrow the money to pay for these things as in reality the list price (much like house prices) isn't actually pegged to an intrinsic value, it's based on a monthly number of a finance agreement that is affordable to enough people to make the model financially viable.

Remove access to or availability of affordable finance and the business model is dead. This can only accelerate depreciation ever further in the retaillers desperation to move units and offer discounts.

 

[Red C220]

But there’s three things going on here:

The usual bid-ask spread. If she’s being bid at £22k, it’ll be retailed out at £26k, same as usual.

There’s this enormous tax break that’s given to company EV purchases, which subsidises new car sales, and creates that glut on the market.

And finally, sadly, the id3 has had a problematic launch, with reliability and software issues that have dented its initial charm and promise. So the Id3 has seen defectors to Korea and even France as new products came to market.

Taking the ID3 in isolation vs it's closest real world petrol competitor - a Golf.

Like for like the ID3 is circa £10K more new, list.

12 months down the line the ID3 is worth less than the same golf, it's deprecetiation curve is more then double the petrol car.

The real world indicator though is lease prices. The two ev's we lease (Mazda's) at £275+vat per month will hit three years old next year. If we were to replace them with the identical vehicle on identical terms they would now be circa £475+vat per month. It's pretty much like this across the board with EV lease deals, across almost all brands. Combine this with electricity prices and your total annual cost for EV vs Petrol is no longer the no brainer that it used to be, that's assuming you've got it through a Ltd company to start with.

As a private individual unless you're living in central London with off road parking and a home charger facility, there is little upside of EV right now.

 

[Red C220]

My neighbour has taken a bath on his two year old Taycan, after putting barely any tax subsidised miles on it. But it’s really all first owner depreciation and, to my eyes, comparable to the hit that Panamera owners saw. He talks -vaguely- about his 4S being worth £70k retail, 30% down, after two years, so presumably £60k trade-in, 40% down.

It’s a stunningly impressive vehicle. I remember being wowed by them at Zuffenhausen back in late 2019. But, at the end of the day it’s still a four door Porker, a silent high performance motor with a restricted second user market waiting for it.

It’s never going to be a 911 or Ferrari. Too many doors.

As a vehicle they were astonishing, ours just didn't work, then the dealer backup was just a shambles. The big issue being when something occurs to the car (accident etc) you are restricted to one of 12 centres in the entire UK which have either one or two employees trained to repair them. So the entire UK Taycan fleet has circa 18 trained techs to effect mechanical repairs in the entire UK. It's not parts that are causing the wait times, it's lack of trained techs and facilities.

They also aren't a patch on a Panamera for quality fit and finish, but then a Panamera is more money, quite a lot more money like for like.

Your neighbour is being generous with his numbers. Look on Autotrader at the number of Taycan's for sale at non Porsche dealerships, it's an eyeopener. Porsche don't want them unless you give them the car on an SOR arrangement.

 

[MikeInWimbledon]

Taking the ID3 in isolation vs it's closest real world petrol competitor - a Golf.

Like for like the ID3 is circa £10K more new, list.

12 months down the line the ID3 is worth less than the same golf, it's deprecetiation curve is more then double the petrol car.

The real world indicator though is lease prices. The two ev's we lease (Mazda's) at £275+vat per month will hit three years old next year. If we were to replace them with the identical vehicle on identical terms they would now be circa £475+vat per month. It's pretty much like this across the board with EV lease deals, across almost all brands. Combine this with electricity prices and your total annual cost for EV vs Petrol is no longer the no brainer that it used to be, that's assuming you've got it through a Ltd company to start with.

As a private individual unless you're living in central London with off road parking and a home charger facility, there is little upside of EV right now.

I know. I've talked about the GTI vs e-Golf comparison before. Its depreciation, energy prices, and interest costs.

And it's going to get worse as used company EV's flood the mainly private second user market, where people are more price sensitive and have less access to home charging and are more price sensitive about commercial charging.