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Used Cars: Taking stock of decline in second-hand values

The cause of the decline in vehicle sales has been a combination of the credit crunch, oil price (and therefore fuel price) increases, and interest rate pressures. 

The combination of these factors has led people to reappraise the need to change their car and in many cases consumers have decided to wait and see. 

The fuel price issue itself appears to have led to a paradigm shift in people’s attitude to certain vehicles (notably 4x4, SUV and large engine vehicles).

This has led to a significant and probably permanent fall in the residual value of these vehicles.

Although pre-registering secures volume bonus, it leaves dealers with sometimes large numbers of ‘nearly new’ stock to dispose of.

In turn, that exacerbates the impact of the other market pressures, affecting subsequent new sales and the ability to sell existing used stock. It also has a further residual value impact. 

Dealers who were engaging in pre-registration activity earlier in the year may still be trying to retail out of these problems, facing significant book drops on this stock, which in many cases will not yet be reflected in their financial results.

The current environment

The current environment will have serious ramifications for dealers who are overstocked, or with aged stock profiles skewed towards large vehicles with stand-in values not properly written down to reflect the current market. 

John Johnson, operations director at Jaguar UK, says: “Values dropped so quickly in July and August that many dealers were stuck with cars at a price that the market wouldn’t take.

Now most have traded through that and they are back to a market level.”

Ray Sommerville, managing director of Perrys Motor Sales, adds: “Sales managers were clearing the decks and buying cars that looked cheap, but the following month they weren’t cheap. That was the trend for a couple of months.

Stock profiling is crucial. “You have to buy at the right price and you have to sell the car quickly with residuals moving so quickly,” says Mike Pilkington, Manheim auctions and remarketing managing director.

“Dealers who realised this have washed out their stock; others have been slower to react.”

  • Read this story in full in the 17 October 2008 issue of AM. To subscribe to AM magazine click here or call 01733 468659.

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