Used car values "unusually stable" moving into November – CAP
Key to the dynamic is a fragile balance between muted consumer demand and relatively low volumes of available vehicles.
Typical used car market “seasonality” tends to see used values dipping by an average of nearly 3% for November – with a slightly more severe downward movement last year of 3.1%.
In contrast, the November 2011 movement is just -1.5% at 3yr/60,000 miles.
A relatively low volume of available cars is the principle reason for this unusual stability, forcing trade buyers into the open market to actively acquire stock.
Poor performance in the new car sector has meant that franchise dealers in particular are not receiving sufficient retail quality part-exchange vehicles. Together with the need to place more emphasis than usual on used car business as an alternative source of profit, this is forcing them to compete with independent used car specialists in the open market to acquire stock.
While retail demand is unsurprisingly muted by economic uncertainty and subdued consumer confidence, there is sufficient activity to justify continued stock purchase. Thanks to relatively lower volumes than have often been seen historically at this time of the year, this demand is sufficient to have stabilised used car trade values.
Another notable feature in the current market is a shift in the relative fortunes of franchise and independent dealers, Black Book reports.
Historically independents have had a distinct advantage in having little or no restrictions on the kind of stock they carry, compared with their franchised counterparts. This usually means they can flex their offering, depending on customer tastes, but currently they are having to compete harder for used stock, which is then putting pressure on margins.
This is because the lack of part-exchanges due to the still woeful performance of the new car market is forcing franchised dealers to go out into the market for stock. For franchise dealers it is proving easier to compete on cost by cutting margins on the metal because they also have the prospect of bolstering their business with the aftersales and service aspects of their offering.
For many large independents this has meant a much harder struggle to source the right cars in the first place, as well as undercut their franchised competitors. This, at a time when footfall is unsurprisingly reducing, is creating some real challenges in that particular retail sector.
Tim Bearder, Black Book editor, said: ‘Although there has been talk in some quarters of something approaching another market meltdown before the end of the year, we continue to see no evidence of anything like that. As long as supply remains in line with expectations and retail demand is maintained somewhere around the reasonable levels currently reported, this month will be stronger than is often typical for the time of year.’For more of the latest industry news, click here.