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Franchise dealers advised to sell older cars to combat shortage

Glass’s is urging more franchised car dealers to sell vehicles that have higher mileages and are more than three-years-old to combat the anticipated reduction in used car supply over the next 12 months.

It says that by 2011 there will be around two million fewer used cars aged between one and five years in general use compared to 2008.

 

“In 2008 over 60% of franchised dealer stock consisted of cars less than two years old, and yet this year alone there could be as many as 600,000 fewer one and two-year-old cars available for dealers to retail,” explains Adrian Rushmore, managing editor at Glass’s.

Rushmore says the falls in used car supply are the product of two trends – each month of low registrations has produced a proportionally lower number of part exchanges, and the prolonged period of low registrations has meant the parc of younger used cars has also steadily diminished.

Franchised dealers are particularly vulnerable, says Rushmore.

“Many are handicapped by the constraints imposed by strict standards relating to vehicle condition, laid down by approved-used programmes. We acknowledge that some manufacturers have relaxed and broadened these standards, but more still needs to be done," he said.

“There are various initiatives that could be undertaken, the most obvious being the introduction onto the forecourt of older vehicles and those with higher mileages. This could be embraced into a two-tier system that allows for less-exacting standards of preparation for older examples. That would ensure preparation costs do not rise to the point where retail prices become unrealistically high. Costs could also be better controlled with lower hourly workshop rates for older cars, and the wider use of non-OEM and reconditioned parts.

“The very nature of three to five-year-old cars is that each one is more likely to be very individual in terms of mileage, specification and colour. As a result, this retail stock is less price-sensitive and profit margins should, therefore, be better protected.”

Competition for stock is going to intensify, warns Rushmore.

“It will be important to nurture those fleet contacts and ask for first refusal when cars are changed. Also, a dealer’s own database of customers could be a valuable source of used cars. It would be far easier to gain the attention of a customer if the telephone conversation started ‘Would you consider selling your car?’ rather than, ‘Would you be interested in buying a car?’”

As choice becomes more limited in the coming years there will also be a greater need for dealers to buy cars that require additional reconditioning work.

In addition, the ‘right’ car may present itself at a time when retail sales are experiencing a lull or when stocks are high. In these circumstances the correct decision could well be still to make the purchase, even if the stock-holding period is likely to be less palatable for most dealers.

This will make appraisal and valuation even more important.

Despite the reductions in used car availability, there is unlikely to be a dramatic rise in prices in the foreseeable future.

“Despite the shortages, we should not get the idea that the market will be in a frenzied state of excitement in the next few years,” adds Rushmore.

“There will still be the normal highs and lows and, whilst prices will edge upwards when viewed on an annual basis, there will be no repeat of the unprecedented rises we saw last year.”

 

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