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Stability returns to the used car market

The question that topped the list of media enquiries to CAP in the last few months was where the used car values upturn was heading.

That has now been answered with stabilisation of the market in October. The extent of the upturn surprised observers at CAP, with an unexpectedly strong market well into September.

But October finally saw average values reach a plateau.

More typical seasonal movements were seen with slight reductions in average values for superminis, city cars and small executives.

Driving this has been a slight increase in supply.

One of the ways dealers are responding is by reverting to their customary stock profiles, rather than the unusual mixes that were forced on them during supply shortages by the need to fill their forecourts.

Dealers will welcome the increase in supply, particularly from rental sources.

There is also evidence that disposers are taking greater care in the presentation of stock, with minor damage repairs making it more attractive. This should remove some pressure on workshops and help margins.

Many dealers have complained that the soaring values of trade stock, combined with savvy consumers who know the retail value of the products they want, has meant severely squeezed margins.

But others have been celebrating the ignorance of customers who had no idea that the value of their trade-in had been increasing.

This enabled those dealers to enjoy their best margins for some time.

This situation is unlikely to be maintained, however, given the publicity around this issue during September.

CAP’s view of the immediate future is that the market will remain far more stable than it has been in this period during recent years.

Dealers will be wary of liquidating stock toward the end of the year because many paid a very heavy price for doing so last year, some being forced to buy back what they had sold at inflated prices.

This year we expect to see the reverse of de-stocking in the form of more speculative purchases.

Looking further ahead, the economy remains very shaky and there is still the risk of a deep consumer recession to follow the dip that has damaged business so badly.

With the spectre of unemployment rising to three million this must remain a distinct possibility.

But on the positive side, long term it seems we have seen the last of the endemic over-production that created such instability in the market, with SMMT forecasts of a new car market stabilising in time to 1.8 – 1.9 million registrations.

And in the short term, scrappage has taken several hundred thousand cars – many of them perfectly serviceable – out of the frame.

This is likely to cause a ripple effect by forcing some consumers to choose cars further up the value chain thanks to a shortage of ‘bangers’. 

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