AM Online

Used cars: Sales dip, but forecast is for 8% rise by 2011

Demand for used cars is forecast to dip this year to around 7.73m, with a subsequent impact on the value of the market, expected to fall from £44.42m in 2005 to £43.46m. However, the market is expected to pick up over the next five years, rising by an anticipated 8%.

Interest rate uncertainty, high debt repayment costs and a decline in consumer confidence are cited as the main causes for the 2006 drop, according to Trend Tracker’s latest market study.

It calculates that the average unit value will also slip slightly, from £5,675 to £5,625, with the market for cars costing more than £8,000 hit hardest (see graph). That’s 2% down on the 2004 peak of £5,745.

Used car supermarkets

Sales of higher priced used cars are more volatile than other price sectors, especially when new car sales are supported by dealer and manufacturer finance incentives. Marketing incentives employed to support new car sales will result in reduced demand for higher value used cars, particularly in the volume brand sector.

Although the £8,000+ sector is down year-on year, it has grown significantly over the past decade. However, franchised dealers have lost some sales to used car supermarkets.

Their share of the market is static at 28%, compared to independents whose share has risen from 32% in 2005 to 34%. And despite charging premium nearly-new sales prices, franchised dealers’ average per-unit used car margins are lower than those achieved by independents.

Trend Tracker’s Robert Macnab says: “The market for cars at £8,000 or more has grown by 125% since 1998. Just to maintain the status quo, franchised dealers’ used car sales volumes should have increased by 125% as well. But, in fact, they have grown by a mere 21%.

“The reason for the slow growth in dealer used car sales has been the growing competition from larger independent dealers and the used car superstores in particular.”

The number of used car superstores has grown by 71%, from 70 in 1998 to 120 in 2006 (22 operated by franchised dealers, including Arnold Clark, Lookers and Pendragon), while the total number of independent used car dealers has fallen by 17%.

Used car superstores account for 8% of used car sales (600,000 units), each selling an average of 5,000 cars per year. They tend to sell cars in a similar price range as the larger franchised dealers (those stocking 200+ used cars) and at a similar margin, achieving £850 gross profit per unit against £870 for dealers. That compares to £975 for all franchised dealers and £1,078 for all independents. (Feature continues in September 22 issue of AM)

  • To read the full article subscribe to AM magazine. Click here or call 01733 468659. A subscription to AM can only benefit your business.

  • If you are not a registered user your comment will go to AM for approval before publishing. To avoid this requirement please register or login.

    Login to comment


    No comments have been made yet.