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Concerns over mix of cars now appearing at auctions

  • Author: Adrian Rushmore, managing editor, Glass's

Over recent months the trade has been voicing increasing concern that auctions are presenting a less than desirable mix of used cars.

Perception is that there are a disproportionately high number of three to four-year-old cars with high mileage requiring bodyshop repairs.

It is also observed that there is a greater preponderance of mainstream, lower and upper medium cars from the prestige brands.

If this is the case then where are these vehicles coming from? And why has this become a recent feature of the market?

The origins of the trend can be found in the SMMT new car registration figures. During the first six months of 2011 year, sales were down 7%, but registrations to fleets were up 3.5%.

What is particularly notable is that private sales are more than 18% down on last year. We can, therefore, make the reasonable assumption that, in a mature car market, each new car sale will generate a used car for resale.

In the case of the fleet sector the typical replacement cycle will present cars aged between 36 and 40 months, and the majority of these are disposed of at auction.

This means that this year the number of ex-fleet cars entering the auctions is greater. It also means that the premium brands are more strongly represented, especially for lower and medium sized examples like the A3 and 1 Series.

This is because of significantly higher registrations during 2008. Conversely, private new sales create part-exchanges for dealers, and those that are not retained are also despatched to auction.

The fewer number of these dealer part-exchanges serves to make the ex-fleet cars more conspicuous.
The logic of this argument is supported by the used car sales figures.

Auction sales of ex-fleet between March and June of this year increased by 15% compared to the same period last year – from 87,000 to 100,000 units.

Interestingly, the number of dealer part-exchange sales did not reduce. In fact, sales increased by 4% from 313,000 to 326,000 units.

The reason for this was that March 2010 was the last month of the scrappage scheme and this business only produced part-exchanges for the dismantlers.

If these 10+ year old cars had gone to the auctions instead, the overall numbers would have been greater last year.

There is another reason why ex-fleet cars appear to be in abundance in the early to mid-summer period - because sales conversion rates for fleet auctions are typically 3% to 6% lower than for any other type of vendor.

This means that more cars are being re-entered at a later date, and as fleet cars take longer to find trade buyers the build up in numbers is relative to the number of cars coming from other sources.

There is another knock-on effect to note. Better-quality cars are the focus of more dealer interest and these are snapped up quickly.

This leaves the lower-grade cars to languish and the same fate befalls higher-mileage cars (which the market would generally define as over 80,000 miles).

At the end of July there were a higher number of vehicles for auctions to process, relative to three months ago, and compared to the same time last year.

Once prices are low enough, the trade will take them on, and the signs are that this is now what they are doing.

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