Used car values at auction are likely to remain relatively strong in the medium term as the wholesale market reacts to a shortage of good quality stock.
According to Roger Woodward, managing director of leading online auction company, CD Auction Group, dealers will need to be more selective about the vehicles they buy for stock, especially as major vendors such as fleet operators will be under pressure to hold onto cars for longer.
“We think 2011 is going to prove challenging in the used car market for both fleet vendors and traditional trade buyers such as car supermarkets and dealer groups,” said Woodward.
“There is no doubt there is going to be a continuing shortage of good quality, retailable stock and that means auction values will be strong for the right vehicles.
“But retailers will be cautious about over-paying for stock because consumer demand is uncertain while fleet operators wanting to ‘cash-in’ are likely to be held back by their finance departments.
Customers, both wholesale and retail, will be looking for bargains.
“We expect the end result to be a widening at auction of the value gap between good quality, read-to-retail stock and average cars.
"Dealers will need to be aware there is a limit to how much a customer is prepared to pay for a vehicle, especially in difficult economic times.”
Woodward is keen to differentiate between the short and medium term markets.
In the short term, he expects values to slip back because of the upcoming VAT rise and the traditional seasonal effect.
“Canny dealers used to buy at the end of December in order to take advantage of rising prices in the early months of the new year but I think they will be more cautious this Christmas,” he said.
“The VAT rise in January means they will have to absorb a 2.5% price increase on most cars sold at auction or raise their forecourt prices.
“We think many will stick on their hands or only bid for bargains.
"Vendors need to be realistic and take the money that’s on offer if they want to see their cars sold before Christmas. That creates a buying opportunity.”
The uncertainty in the market is likely to continue through January but it is stock shortages that will create the greatest imbalance in 2011, said Woodward.
“You have got to remember that, by mid-2008, many fleets had simply stopped buying new cars. These vehicles should be coming to the used market in 2011 and they would have been the bread and butter of the used car forecourt,” he said.
“New car sales to fleets were down by 7.1% in 2008 and a further 20% in 2009.
"New car sales to private buyers were down almost 15% in 2008. So, where are next year’s used cars going to come from?”
CD Auction Group is already seeing a rise in the average age of vehicles it sells from some of the UK’s major trade vendors through its online auctions.
The average age in 2008 was 35 months; in 2009 that stretched to 37 months and, in 2010, the average age of cars sold is 41 months.