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Used stock shortage keeps market from full recovery

The shortage of quality used car stock is holding the market back from a full recover, according to vehicle information provider HPI.

It believes that even if the tap was turned back on tomorrow, it would still take months before used stock reached levels to match demand.

Martin Keighly, HPI’s valuation expert, said: “The great stock shortage is at the forefront of everyone’s mind, with many wondering when it will end.

“The operators who have control over used car stocks, namely manufacturers, rental companies and fleets, are no longer managing the process in the usual way. Knee-jerk reactions at the beginning of the recession have not been reversed as the economy has started to recover.”

Keighly said manufacturers reduced their used vehicle stocks to the bare minimum and in addition, they turned off the taps, reducing production of new vehicles, while reducing support for the daily rental industry in both numbers of vehicles and depreciation risks.

He said: “The steps taken by manufacturers had a knock-on effect. Daily rental companies no longer have the regular volumes that would normally make their way into the used market. In the current economic climate rental organisations struggle to get finance to take on the extra risk of outright purchase of new vehicles.

“With rental companies holding onto vehicles for longer, what was once a major supply of used car stock is now just a trickle.

"Added to this leasing companies are relying on extending contracts to ride out the residual value falls and avoid large back end losses. This means fewer ‘end of contract’ vehicles coming to market and those that do appear are above average in terms of age and mileage."

Keighly believes the shortage of stock will find some franchise operators will struggle to survive and many dealers are retaining older and higher mileage vehicles they would have once passed down the line.

HPI wants used car market suppliers to start taking risks again even though used values are returning to "sensible levels".

Keighley said: “The stock shortage looks like it’s going to be with us for some time.

"Meanwhile, used values will continue to rise, leaving dealers competing with each other in an effort to fill the empty spaces on their forecourts. Until true market confidence returns, which could be the middle of next year at the earliest, dealers are going to continue to struggle, as fresh used stock remains elusive."

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