Trade values are expected to rise during early 2011 as supply constraints continue to force dealers to compete in the open market for the best stock, says CAP.
The January edition of Black Book reports that exceptionally high auction conversion rates in December were fuelled by a genuine appetite for stock among dealers.
Research during the early days of 2011 confirms that stock remains scarce and ‘serious buyers’ are already out in force.
CAP traces the first signs of the strong resurgence in trade demand back to the severe weather during early December.
Despite winter conditions preventing many buyers from physically attending auctions, online bidding activity soared.
Retail activity has also been brisk, creating an immediate need to fill spaces on the forecourt during January.
Black Book research editor Mark Bulmer, said: “Buyers spent December attempting to stock up and this was not only driven by the desire to beat an anticipated January rise in values.
“Research during December consistently revealed a genuine appetite for stock, underpinned by a positive level of confidence, to ensure dealers were in a position to get the year off to a good start.
“There is also a widespread acceptance that buying will need to continue in January and that they will need to pay ‘all the money’ for the best stock because it is so thin on the ground and everyone will be pursuing it.
"For example, major disposers entered 2011 with significantly fewer vehicles than they began last year with.”
Looking ahead to the rest of the year, CAP believes that supply constraints are unlikely to ease in the short term.
It is also noted that many dealers are working hard to avoid low used car stock levels after they were caught short at the beginning of 2009.
Bulmer said: “The conversion rates for some December sales were remarkable, tipping 90% in some cases when we might ‘normally’ expect the figure to be well below 50%.
"This gives an indication of the current balance of demand versus supply and a pointer to the likely condition in the early part of 2011.
“The memory of early 2009 remains fresh in the minds of many. Those who had de-stocked at the end of the 2008 downturn quickly found themselves behind the game and there is a determination not to repeat that understandable mistake.
"Of course this does not automatically mean a bonanza for dealers. If trade values do rise significantly during the early part of the year it is highly unlikely that the retail customer will be happy to pay more.
“Therefore dealer margins could prove to be a real challenge. And if our outlook is correct and stock availability remains as limited as we currently foresee, the mid point of the year may not see any easing in this situation.
"Dealers are also feeling forced in some cases to offer more than they would prefer for good part-exchange stock, in order to compete with the growing trend of consumers offering their vehicles directly to specialist stock buyers.
“There are further anecdotal indications that some disposers will also be bypassing the open market and offering more stock directly to supermarket operations.
“In summary, we begin the year with a market which demonstrates some strength but cannot be described as easy.
"Margins will be under pressure and stock acquisition will prove a headache for many. But for disposers who offer high quality, well prepared stock and dealers who are sufficiently nimble to keep up with both the trade and retail dynamic there will be opportunities for real success.”