Motor Trader Used Cars Special Report 2017

It’s been a great time in used car sales. At the retail end the big dealer groups, including Pendragon, Inchcape, Lookers, Vertu and Marshall – have reported excellent used car sales with profits on the rise. The large dealer groups’ used car operations are benefiting from their scale and spending power. They have made big investments in their websites and digital tools to maximise used car sales and increase stock turn.

There have also been developments in supermarkets. Sytner entered the market with the purchase In January of the £195.3m-turnover five-site Car Shop supermarket chain for an undisclosed sum, in a deal which made it the biggest franchised group by turnover in the UK. Under Sytner ownership the CarShop business will continue to be run by its existing management team led by Jonathan Dunkley. New investment means it will now be able to fulfil its ambition to grow the number of outlets it operates with sites in the south of England and Northern Ireland being considered.

Pendragon has also moved into supermarkets, intent on building a network of 40 CarStores to give it incremental sales in areas where it was not previously represented. And Lookers, too, has invested in its used car operation with the launch of Lookers Outlets. The group opened its second multi-franchise used car centre in Motherwell on 1 September. The opening came just four weeks after the dealer group opened its first Lookers Outlet in Gateshead ahead of a planned national rollout.

Lookers argues that although its Outlet concept offers customers a choice of all-makes used cars, it differs from car supermarkets because of the franchised dealer standards it uses. On the independent front, Trade Centre Wales is also expanding.

It turned in a strong performance in the year to November 2016 with pre-tax profits up 50.9%  to £9.9m on turnover up 37.3% to £105.7m.

The group continued to invest in its infrastructure and in April opened a site in the West Midlands, its first venture outside of Wales.

Regardless of whether you are a franchised dealer with or without supermarkets or an independent like Trade Centre Wales, as you move towards the final quarter, you can expect the usual glut of vehicles in mid-September as part-exchange cars begin to pump through the system. So, what do the valuation guides think is on the cards? Glass’s is expecting a big increase in volumes churning through the retail and wholesale sectors in September but not as great as seen in April after the March plate-change.

“Buying activity in September and early October is expected to be strong as buyers fight to purchase the best presented stock before activity peters out with supply beginning to outstrip demand.” said Jayson Whittington, chief car editor with Glass’s who also pointed out that last year’s final quarter was something of an oddity.

“Whilst auction activity remained strong during all of the final quarter of 2016, which took some by surprise, activity in November and December this year is expected to follow seasonal patterns and we would expect to see a buyers’ market emerge with values coming under downward pressure,” he said.

So much for retail part-exchange vehicles. James Dower, senior editor of Black Book at cap hpi is expecting some serious de-fleeting in the final quarter after the plate-change. He said the market was stable in August but he forecast a hike in activity.

“There is a potential for some significant increases in de-fleet activity through Q4 of the year. Alongside the potential pressure on nearly-new that we may see in Q4, there will also be higher numbers of three-year-old stock returning to the market after the growth in new car volumes experienced in 2014.”

Not surprisingly, he is also expecting a dip in values in Q4 with supply exceeding demand in a sated marketplace.

“While it appears that the rest of Q3 looks set to remain stable, November and December have the potential to see prices erode at a higher rate than witnessed in previous years,” he said.

Louise Wallis, head of the National Association of Motor Auctions (Nama) also picks up on the impact of the three-year cycle from 2014.

“Although the new car market has softened over recent months September is still likely to be a strong month for sales as fleets and consumers change out of cars bought three years ago.

“Although there will be the an increase in supply of vehicles through September and into October it is anticipated there will be demand for them, which will mean values and auction conversion rates should remain strong particularly for good quality low mileage vehicles. Petrol vehicles are particularly popular due to increased consumer demand for them and has meant values for them are slightly stronger than for diesel, although diesel vehicles continue to sell.”

Glenn Sturleychair at the VRA said: The increase in volumes from the plate-change will be interesting, allowing us to monitor how the industry continues to cope with higher defleet volumes from new car sales success in recent years, combined with the uplift in part-exchanges from the forced new car market. It is likely that used car values will come under pressure, particularly those in certain niche sectors.”

One factor that is distorting the new car market in a serious way is diesel. Sales of diesel cars are down 11% in 2017, reflecting health and environmental concerns. But what about diesel in the wholesale sector?

According to Whittington at Glass’s demand for petrol cars has increased but he sees no fall in diesel wholesale demand.

“There is very little evidence of a decline in diesel demand at auction, however we have seen an increase in activity and demand for petrol models. Whilst the petrol diesel debate continues to rage in the press, the reality is that at three years of age for example, the wholesale market is heavily weighted in favour of diesel supply, due to the volume that have been sold new, over many years.

“As a result, dealers and traders will continue to buy what is available in the marketplace regardless of fuel type. Whilst petrol demand is expected to increase over the coming months, put simply, there is not enough supply which is likely to see petrol hammer prices strengthen further,” said Whittington.

Andrew Mee, senior forecasting editor at cap hpi concurs.

“For smaller cars, petrol will continue to perform better than diesel as used buyers question whether they need a diesel engine, while diesel used supply will still be strong from prior year registrations.”

So, lots of innovation in used cars in websites, digital tools, data use, increased stock-turn and the creation of new retailing formats. And even if new car sales are down in September, we will still see a hyper-busy period as all those part-exchange cars are remarketed through the system.