Why Supply Chain Challenges Could Impact Used Car Prices In 2025

The automotive industry has been on a rollercoaster ride over the past few years, and as we steer into 2025, supply chain hiccups continue to play a pivotal role in shaping the used car market. Let's break down what's happening with supply and demand, what the latest data tells us about pricing trends, and how dealerships can navigate these choppy waters.

The Supply Chain Challenge

Remember the semiconductor shortage that threw a wrench into new car production? Well, its effects are still echoing today. Fewer new cars rolling off the assembly lines a few years back means fewer used cars are available now. It's a classic case of supply and demand: prices are bound to climb when supply tightens, and demand remains steady or even rises.

Current Pricing Trends

According to Auto Trader's Retail Price Index, the average price of a used car in December 2024 was £16,649, marking a slight 0.6% dip from November. While this might seem like a minor decrease, viewing it in context is essential. Year-on-year, prices were down 4.1% in December, but this decline is the smallest observed throughout 2024, indicating a trend towards stabilisation as we enter 2025.

source: plc.autotrader.co.uk

Demand Dynamics

Despite the supply constraints, demand for used cars remains robust. Auto Trader reported a 4.1% increase in site visits in December 2024 compared to the same month the previous year. This surge in consumer interest suggests that many buyers are still keen on securing a vehicle, even amid higher prices.

source: plc.autotrader.co.uk

Tariffs and Economic Pressures

Adding another layer of complexity, potential tariffs on imported auto parts and materials could further strain the supply chain. Such tariffs might increase the cost of car repairs and the prices of new and used vehicles, which are factored into insurance rates. The Consumer Price Index has already shown a notable rise in car insurance and repair costs in January.

source: wsj.com

Adapting to the Challenges

So, what can car dealerships do to stay ahead?

1. Stay Informed: Keep a close eye on market data. Regularly monitor pricing trends and adjust your inventory and pricing strategies accordingly.
2. Diversify Inventory: To appeal to a broader customer base, consider expanding your range to include a mix of vehicle types and price points.
3. Transparent Communication: Educate your customers about the current market dynamics. Transparency can build trust and help manage buyer expectations.
4. Explore Financing Options: With rising prices, offering flexible financing solutions can make purchases more accessible to a broader audience.
5. Strengthen Supplier Relationships: Building robust relationships with suppliers can help mitigate some supply chain challenges and ensure a steadier inventory flow.

Looking Ahead

While supply chain disruptions present significant challenges, they also offer dealerships an opportunity to innovate and adapt. By staying agile and informed, dealerships can navigate these uncertainties and continue to meet their customers' needs in 2025 and beyond.

At Marsh Finance, we understand the complexities of the current market and are here to support our partners with tailored financing solutions. Let's work together to turn these challenges into opportunities.