Used-car bubble could burst in 2022, experts warn

After two years of ever-increasing resale values in the used-car market, financial experts are warning the bubble could burst in 2022.

Global accounting and analytics firm KPMG have published a report forecasting a drop of 30 per cent from today’s prices, as new-car supplies become more stable in the new year.

The COVID-19 pandemic led to a number of supply-chain issues for automotive parts – the most prevalent being the global semiconductor chip shortage – further exacerbated by issues in the shipping industry.

These problems meant fewer new cars being delivered to customers and dealerships, with demand far outstripping available stock, which caused an unprecedented increase in demand for second-hand vehicles.

The report indicates chip suppliers are expected to close the supply/demand gap in 2022, unwinding the issues and potentially leading to a collapse in used-car prices.

“Normally, when the market senses that automakers are once again able to produce a normal supply of new cars, we would expect equilibrium to be restored and used-car prices would normalise,” the report states.

“That implies a reduction from current price levels of roughly 30 per cent.”

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However, the report concedes rising inflation could create a new floor for both new- and used-car prices.

“Raising interest rates to curb inflation could also reduce consumer demand, placing downward pressure on pricing and bringing back aggressive incentive spending.”

While some manufacturers have been optimistic about industry supply-chain issues improving in 2022, there are no signs yet of relief.