Used Cars

The recent changes in CO2-based car tax bandings, almost doubling some models' annual VED won't impact short term residuals, but will ultimately push down values, according to EurotaxGlass's managing editor Adrian Rushmore.

An online programme for approved Saab retailers launched last month enables dealers to source used cars without visiting auction halls.

Used car sales only dipped slightly last year despite consumers feeling the economic squeeze following a series of interest rate rises and the onset of the credit crunch.

Used car dealers are finding saleable stock harder to come by in the wake of poorer quality part-exchange vehicles.

Waqas Qureshi Economic uncertainty over interest rate rises and credit crunch issues saw used car sales dip last year, but analysts believe dealers will be able to adapt to the market this year. According to Experian, 2007 began on a negative note, with used car sales dropping 6 per cent during quarter one and 2 per cent during quarter two. The third quarter revealed a continuing downward trend and Experian thought it was likely that figures would prove 2007 ended as it had started and predicted a tough time in 2008. But research by Cap showed that a majority of retail used car dealers do not currently expect a significant downturn in buyer demand. Findings showed that only 18 per cent of dealers expect to sell significantly fewer used cars this year compared with 2007. Nearly a quarter of dealers believed this year's retail used car market will be little different from last year while 36 per cent acknowledged there may be some reduction in sales but were not seriously concerned about their retail prospects. Nearly-new dip Sales of used cars fell by 3 per cent during quarter three of 2007, but younger cars suffered the most, according to Experian. Cars aged less than three years old fell in sales by 8 per cent compared to quarter three of 2006, the biggest drop in sales for younger cars during quarter three since 2000. Kirk Fletcher, managing director of Experian's automotive division said that new car sales had started falling in 2004 and continued for two years, resulting in fewer younger cars aged up to three years old going into the used car market. “However, the new car market recorded stronger sales than predicted during 2007. This could be due in part to the lower prices and greater incentives new car dealers have been offering customers, but also as a result of manufacturers incentivising their dealers to sell more new cars. Ultimately, we could see a surge of nearly-new cars onto the used car market this year.” Fletcher said the feeling in general is that 2008 will be tough. “Unfortunately, the number of interest rate rises during 2007 indicates that 2008 will see a significantly weaker spending rate and the logical pressure point is the automotive industry.” Delayed spending Consumers continue to delay their spending as they await further price drops and better incentives. These will inevitably come towards the end of the year as dealers attempt to meet their targets. Fletcher said many dealers found the market had been particularly hard over the past year and concern about the situation not improving in 2008 had led to prices dropping. This had resulted in an upturn in used car sales during the last month for some dealers. Adrian Rushmore, managing editor of EurotaxGlass's, said that used business held up reasonably well in the third quarter of 2007, but in the final three months of the year the situation deteriorated. “A downturn in used car sales is nearly always linked to factors that negatively impact consumers' disposable income, their confidence, or a combination of both.” Level headed BCA's UK operations director Simon Henstock felt that used car sales would hold their own this year. “Our experience is that professional buyers are generally pragmatic about their prospects for 2008 – they know the market has strength in depth and that motorists will still be buying used cars this year. Price may well become an issue if economic conditions tighten, but January has certainly been reasonably buoyant.” He said that BCA's findings clearly showed a consistently growing market share for retail dealers – with recent figures showing a record £25.6bn spent at dealers as motorists purchased over 4 million used cars. “We have found that 70 per cent of car buyers choose to buy a used car rather than a new one, with price, value for money and avoiding depreciation being the main benefits perceived by motorists. Robert Hester, Cap Black Book valuation relationship manager said that while there was a recession commentary ‘bandwagon' developing, his research consistently indicated that dealers were expressing confidence in their immediate prospects. “This does not mean conditions are easy but that there is no current evidence in the used car retail market that dealers expect a severe downturn. One challenge, however, is the tightening of lending criteria by some finance houses. But even this will serve the market's wider interests by preventing some would-be car-buyers from over committing,” he said. Forecourt changes Cap found many dealers were considering changing the profile of their forecourt stock by introducing more unusual, or “exotic” cars than they previously stocked, while others planned to concentrate on other factors, such as lower mileage, smaller, more economical engines and higher specification cars. Rushmore cautioned against panic profiling, as he thought there was currently a good supply of used cars from the wholesale market. “Stock profiles are little changed but there is a greater inclination to concentrate on those cars with a proven track record of sales success.” Hester said dealers must know their customer demand. “Many dealers, for example, will continue to very successfully retail under-equipped base models in undesirable colours because they will price them attractively and there are buyers for every car at every price point.” Customer choice John Simpson, managing director of Portfolio, recommended that dealers cater for customers both locally and from afar, as searching for cars on the internet had broadened customer choice. “The internet has driven the boundaries of the local market nationwide. The primary issue may be, does the dealer operate a defined sales process that identifies enquiries from ‘distance', which at the very least meets the prospect's expectations and fulfils their requirements?” Fletcher said the issues related to borrowing, widespread reports of a credit crunch and a troubled housing market were all affecting disposable income and confidence. “In terms of used car sales, however, as dealers attempt to meet their sales targets, incentives will increase and we could see prices drop further.” Rushmore said demands on disposable income means either potential buyers delay replacement, or they trim the budget. “Both situations are in evidence at the moment. Over the last two months demand for cars to retail between £1,995 and £3,995 has been particularly good.” He advised dealers to remain optimistic yet prudent. “The future is a little uncertain but there is nothing to suggest that retail prospects are likely to get any more difficult than they are today.”

Economic uncertainty over interest rate rises and credit crunch issues saw used car sales dip last year, but analysts believe dealers will be able to adapt to the market this year.

Used car sales fell by 3 per cent during quarter three of 2007 - the biggest drop for that time of year since 2000.

The used car market is at its lowest ebb for half a decade moving into 2008, according to Eurotaxglass's. “Market conditions are not as healthy as at any point in the last five years,” said Adrian Rushmore, managing editor. Rushmore said in the first nine months of last year dealers had been under pressure but were managing to hit their sales targets but in the fourth quarter conditions were “more difficult”. “Dealers became more cautious,” he said. “There was less need to source cars from the wholesale market because there was less need to replace stock.” He said greater supply coupled with reduced demand had then “negatively affected price”. Rushmore said prices in November and December had fallen more than in the same period in 2006 and added that the usual uplift in January prices was likely to be “much more subdued”. But residual values for one and three-year-old cars held their own in 2007 in percentage terms while prices were up in “pound note terms” due to more expensive cars entering the used market, according to Rushmore. He said the used sector reflected the sales of dearer new models in recent years. Growth in diesel sales, which have a premium of at least £1,000 over petrol equivalents, was a factor as was the strength of prestige brands. Rushmore said the increased supply of diesel models was being absorbed by the used sector and claimed the price differential was “not narrowing” because buyers' attitudes were “more hardened” in terms of the economical benefits offered by oil burners.

The gloomy forecast for the UK economy in 2008 could knock up to £400 off the price of the average three-year-old car, according to EurotaxGlass's.

The used car market has suffered a downturn in the latter part of the year, according to British Car Auctions.