Used Car Prices (increases) + potential for defaults?
Discussion
hey all,
I have been thinking about this for a couple of week, and wanted everyone elses thoughts on the matter.
As we are all aware, second hand car prices are currently at a silly level, (including sheds which are also increasing in price - case of jumping on the band wagon)
But lets stick with 3-5 year old cars, using simple maths: car A in 2020 worth £10k, now worth £13k (just an example)
The dealer, will then sell the car say for £17k (again just an example)...people who dont want to wait, will pay the price, meaning high monthly payments no doubt ( if gone down the route of obtaining finance etc)
is it me, or will the bubble finally burst and many thousands of defaults are on the horizon , all to be caused by the second hand car market and a shortage of chips?
I have been thinking about this for a couple of week, and wanted everyone elses thoughts on the matter.
As we are all aware, second hand car prices are currently at a silly level, (including sheds which are also increasing in price - case of jumping on the band wagon)
But lets stick with 3-5 year old cars, using simple maths: car A in 2020 worth £10k, now worth £13k (just an example)
The dealer, will then sell the car say for £17k (again just an example)...people who dont want to wait, will pay the price, meaning high monthly payments no doubt ( if gone down the route of obtaining finance etc)
is it me, or will the bubble finally burst and many thousands of defaults are on the horizon , all to be caused by the second hand car market and a shortage of chips?
The depreciation loss is probably not worth risking bankruptcy I wouldn't have thought. The bigger problem in my mind is that when people have other things to spend their money on again, particularly in cars that have high running costs "brave pill cars", you will see a sharp correction in prices there first.
Not necessarily defaults, but depending what happens in the car market, many may find themselves with cars worth less than what they owe on finance. Not necessarily a problem for many.
There are so many variables at the moment affecting car values, some of which I'm cynical about. The introduction of E10 fuel is, I think, a strategy to get older cars off the road, as any environmental benefits are debatable. Many people with perfectly serviceable, good cars may be forced to scrap them (we've been here before). That may push up demand for newer second hand cars (and personal debt), as it is said that 600,000 cars are affected. Many will be classics, for which owners are likely to be willing to take whatever measures are necessary to keep them on the road. If computer chip production can catch up, prices of new and used may stabilise, but at the moment, both are reaching ridiculous levels. I'm wanting to changemy car, but will be waiting a while yet.
There are so many variables at the moment affecting car values, some of which I'm cynical about. The introduction of E10 fuel is, I think, a strategy to get older cars off the road, as any environmental benefits are debatable. Many people with perfectly serviceable, good cars may be forced to scrap them (we've been here before). That may push up demand for newer second hand cars (and personal debt), as it is said that 600,000 cars are affected. Many will be classics, for which owners are likely to be willing to take whatever measures are necessary to keep them on the road. If computer chip production can catch up, prices of new and used may stabilise, but at the moment, both are reaching ridiculous levels. I'm wanting to changemy car, but will be waiting a while yet.
JKS1234 said:
is it me, or will the bubble finally burst and many thousands of defaults are on the horizon , all to be caused by the second hand car market and a shortage of chips?
I don't know what you mean by "default". Does a (potential) drop in the value of an asset make any difference to people's ability to service the debt against it? The payments won't change I would have thought. lornemalvo said:
Not necessarily defaults, but depending what happens in the car market, many may find themselves with cars worth less than what they owe on finance. Not necessarily a problem for many.
There are so many variables at the moment affecting car values, some of which I'm cynical about. The introduction of E10 fuel is, I think, a strategy to get older cars off the road, as any environmental benefits are debatable. Many people with perfectly serviceable, good cars may be forced to scrap them (we've been here before). That may push up demand for newer second hand cars (and personal debt), as it is said that 600,000 cars are affected. Many will be classics, for which owners are likely to be willing to take whatever measures are necessary to keep them on the road. If computer chip production can catch up, prices of new and used may stabilise, but at the moment, both are reaching ridiculous levels. I'm wanting to changemy car, but will be waiting a while yet.
As far as I understand it, E5 max will be still available in higher grade fuels.There are so many variables at the moment affecting car values, some of which I'm cynical about. The introduction of E10 fuel is, I think, a strategy to get older cars off the road, as any environmental benefits are debatable. Many people with perfectly serviceable, good cars may be forced to scrap them (we've been here before). That may push up demand for newer second hand cars (and personal debt), as it is said that 600,000 cars are affected. Many will be classics, for which owners are likely to be willing to take whatever measures are necessary to keep them on the road. If computer chip production can catch up, prices of new and used may stabilise, but at the moment, both are reaching ridiculous levels. I'm wanting to changemy car, but will be waiting a while yet.
https://www.shell.co.uk/motorist/e10-petrol.html
“What to do if your vehicle is not compatible with E10 petrol?
You can use Shell V-Power petrol, which contains a maximum of 5% ethanol. Shell V-Power will remain available at the majority of our service stations after E10 is introduced – just make sure you check the label when you fill up”
nickfrog said:
I don't know what you mean by "default". Does a (potential) drop in the value of an asset make any difference to people's ability to service the debt against it? The payments won't change I would have thought.
The payments dont change you are right, but people are overpaying for an asset. So when it finally does drop the standard % amount, there is a risk of a even further drop in value when everything goes back to normal.So unless the buyer sells the newly acquired vehicle during the inflation of second hand car prices then all is ok, and even a profit to be maybe had.
Otherwise the average person, will end up paying more for a car, (because we all have wants, and the pandemic and made wants even stronger) when the market bounces back, I wouldnt want to be in that position where I would lose an extra of hundreds or thousands more just because of timing.
nickfrog said:
JKS1234 said:
is it me, or will the bubble finally burst and many thousands of defaults are on the horizon , all to be caused by the second hand car market and a shortage of chips?
I don't know what you mean by "default". Does a (potential) drop in the value of an asset make any difference to people's ability to service the debt against it? The payments won't change I would have thought. However... in general with a secured loan, the lender has double protection. Firstly the borrower is legally liable for the payments, a liability they can escape only if they genuinely cannot pay. Secondly, even if they can no longer afford the payments, the loan is arranged so that the underlying asset covers the value, so if the borrower can't pay, the asset can be sold, covering the loan. Thus the lender has two layers of protection against losing their money, only if they both fail do they end up short.
When the asset declines in value more than expected, one of these layers shrinks and no longer fully protects the lender, who is then dependent on the borrower's continued ability to afford the repayments. If there is then say a general recession leading to job losses, the lenders can take potentially a fairly significant hit.
However... as long as the economy stays stable, there's no reason to expect a wave of defaults. Plus, the extra depreciation we're talking about here is more like 10%, it's not like the asset is suddenly worth half what was expected. So in many cases the loan won't be underwater, or only by a small fraction.
Therefore I don't see the conditions currently to cause a major credit default crisis.
JKS1234 said:
The payments dont change you are right, but people are overpaying for an asset. So when it finally does drop the standard % amount, there is a risk of a even further drop in value when everything goes back to normal.
So unless the buyer sells the newly acquired vehicle during the inflation of second hand car prices then all is ok, and even a profit to be maybe had.
Otherwise the average person, will end up paying more for a car, (because we all have wants, and the pandemic and made wants even stronger) when the market bounces back, I wouldnt want to be in that position where I would lose an extra of hundreds or thousands more just because of timing.
I bought a car recently, AUC from BMW and I probably overpaid considering the price of used cars.So unless the buyer sells the newly acquired vehicle during the inflation of second hand car prices then all is ok, and even a profit to be maybe had.
Otherwise the average person, will end up paying more for a car, (because we all have wants, and the pandemic and made wants even stronger) when the market bounces back, I wouldnt want to be in that position where I would lose an extra of hundreds or thousands more just because of timing.
In 3-4 years time when I come to sell it, I honestly won't be bothered if its worth a few hundred quid less.
Getuptheya said:
I have a high spec M135i, 2016 plate, manual with 33k miles on it, and I've been offered 16k for it from two which is laughable when poverty spec manuals are going for 19k in some cases on Auto Trader.
This time last year (or before Covid) you'd have got a AUC car in that spec and condition for 16k 
, 50k miler 140is were just a touch over 16.5k, now they're nearer 20k Gassing Station | Car Buying | Top of Page | What's New | My Stuff