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Used car analysis: The only way is down

By Adrian Rushmore, managing editor, Glass’s

It is common knowledge that seasonal factors influence the used car market negatively in the final quarter.

Most people would expect to see successive price falls in each of these months.

In fact, a review of price changes for popular three-year-old cars over the last 10 years shows that prices have never seen any month-on-month improvement in this period. Such is the extent of the overwhelming seasonal impact.

Taking an average of the price movements for the last five years, we see that popular three-year-old cars fall 3% in October, 4% in November, and a further 1.5% in December.

The more relevant debate that takes place each year is to ascertain the extent to which these seasonal price adjustments are likely to take.

September more or less conformed to the five year average with an increase of 2%, but then there was the customary ‘about-turn’. However, prices for three-year-old cars already reached the long-term average of 3% by the third week in October.

A quick tour of the auction halls will reveal that trade buyers are being presented with more choice than at any time since the beginning of summer. For the most part, the higher condition cars were the focus of attention.

The trade is very mindful of the financial risks associated with stock purchases requiring any sort of bodyshop attention.

The fear is that the delay of some three to four weeks before being able to offer these purchases for retail sale could have removed a significant amount of the potential profit margin, due to the intervening market price devaluation.

While this is a pre-occupation at this point in every year, it is particularly the case this year given that there is more retail trading uncertainty.

Many in the trade have not ruled out a collapse in prices in the coming weeks.

By the middle of November there is concern that most of the used cars being presented at auction will be the lower condition grades and if they are not priced to match the market demand there is unlikely to be any revival in interest and prices until the early part of January.

It is therefore probable that in the coming weeks prices will record more severe reductions than the five-year norm, as condition becomes ever more the determinant of price.

For auction vendors there seems little point in waiting for higher prices because all the signs are that this will not happen – at least not until January.

Remarketing the higher grade cars is not likely to be an issue, as the buying appetite is expected to remain good.

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