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PRESSURE on used car trade values is set to mount in the next few weeks, according to the independent pricing experts CAP Automotive.
A bumper new car month in March spells significant imminent increases in supply as hundreds of thousands of part-exchange cars return to the market – just as the Easter holidays herald a typical seasonal slowdown in demand.
That’s the view of CAP Automotive’s Black Book Live, the unique real-time used car values trending tool used by professionals across the UK motor industry.
Higher volumes of vehicles in the marketplace this year, compared with the same period in 2014, means values have already been tracking slightly lower than a year ago. But pressure on trade values is expected to increase imminently as more March new car orders are delivered, sparking a further influx of trade-in cars.
CAP experts researching the market daily have reported a slowdown in buying activity from many of the large used car retailers who are already fully stocked or exercising caution ahead of a ‘normal’ Easter break reduction in retail demand.
Many dealers are also complaining that the scarcity of high quality stock has been driving values for the cars most in demand to “unsustainable” levels.
Underpinning this dynamic is on-going robust retail demand, which has forced dealers to chase values for the best cars up or risk incurring high preparation costs by choosing lower quality stock.
With the market performing exactly in line with CAP’s published forecasts throughout the year, Black Book Live Senior Editor Derren Martin stresses that there are no grounds to fear a used car values ‘meltdown’.
He said: “The market has enjoyed such a stable time over the past few years that any departure from that will be particularly apparent now that more typical seasonal patterns are being re-established.
“Dealers are also particularly vociferous in their complaints about the relatively high values of the best quality, low-mileage, cars at present because margins are under sustained pressure.
“The difficulty for dealers is that they are caught between a rock and a hard place when sourcing stock at a time like this.
“They believe the market will slow down shortly, so they don’t want to be caught out with cars they paid a premium for once demand has reduced. Paying more than they’d wish for cars is always painful because it’s never easy to recoup those extra costs with a higher retail price.
“But at the same time lower quality cars, for which there is less demand in the trade, cost time and money to prepare for retail presentation – and that eats into their margins too.
“However, we believe some value depreciation is just around the corner and would advise that daily tracking of values with Black Book Live will pay dividends from here on so that nobody is left exposed to over-valued stock when the downward turn does begin.”
Dealers reveal a squeeze on margins, despite a bumper March
PROFITS on new and used car sales came under increasing pressure in March, despite the surge in activity prompted by a new plate, say the independent car information experts CAP Automotive.
Exclusive insights into business performance are shared between dealers each month in a unique survey coordinated by CAP which is then used by professionals across the motor industry to help them better understand their commercial landscape.
Despite a strong new and used car sales month in March 41% of dealers reported that margins were tighter than the month before. This signals a change on the picture a year ago, when CAP’s own research revealed that average margins had increased over the previous 12 months by £277.
Although some dealer groups are seeing an increase in used car profit per unit, margin decline is still an underlying problem for many dealers.
At the heart of it are a range of issues. One is that over the past 12 months there has been a decline in the condition of cars typically available for stock, as volume increases. Lower quality means higher preparation outlay at a time when workshop running costs are growing faster than retail prices. Other pressure on retained margins comes from auction fees and transport costs.
Despite March bringing an influx of fresh stock into the marketplace – due to an increase in part-exchange vehicles – only 23% of dealers described the choice of cars available as “better”. This signals further profit erosion in the coming weeks as those cars will also need refurbishing for retail, just as consumer demand is expected to reduce after Easter.
The latest inter-dealer survey also reveals that online consumer interest increased during March more than physical visits to showrooms.
Online activity grew significantly in March for 62% of dealers, with the figure for increased physical showroom visits lagging some way behind at 51%. This indicates that, for many consumers, the car sales activity of a new plate month sparks additional attention and interest without translating into a decision to purchase.
Philip Nothard, of CAP Automotive, said: “Dealers may, on the surface, be enjoying a very successful time but the number of sales isn’t the whole story.
“The squeeze on margins is a constant complaint and the problem is fuelled by a general deterioration in the quality of the majority of cars now available in the market, which forces them to invest much of their potential profit in refurbishment.”