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Used car analysis: A year of growing competition in used car market

By Christopher Crow, chief editor, CAP

CAP has been predicting a downturn in supply to the used car market in 2012 for some time now, but how will this impact on a retailer looking to source vehicles?

To answer this you need to look at what’s happened in the new car market, since today’s new car is tomorrow’s used.

New car registrations have been in steady decline since 2004 except for a minor resurgence in 2007 and in 2010 on the back of the Government’s Scrappage Incentive Scheme (SIS).

The Society of Motor Manufacturers and Traders (SMMT) is forecasting flat new car registrations in 2012 of 1.92 million units, down marginally on 2011. In 2013 it forecasts a modest upturn to 1.98m on the basis of a forecast improvement in the economy.

In order to quantify the supply into the used car market CAP has devised a simple methodology, based upon time lagged new car sales, taking into account the typical ownership lifecycle patterns.

From the chart below you can see that, like new car registrations, the supply of used cars has been in steady decline since the peak of 2.55m units in 2006.

In 2011 that figure was down to 2.17m, some 123,000 fewer than in 2010, which helps to explain the reasonable stability in used car values in quarter three and four of 2011 despite the difficult trading conditions.

The full-year forecast for used car supply in 2012 is 2.05m units, some 122,000 units down on the low returns in 2011.

We also need to consider the impact of the SIS.

In order to qualify for the scheme allowance the vehicle owners had to have owned the vehicle for 12 months or more and the car they were trading in had to be at least 10 years old.

These owners are therefore unlikely trade in their old car for a new vehicle in 2012.

If we exclude these cars from the original new car registrations in 2009/10 the anticipated volume of used car returns in 2012 is more like 1.85m, some 322,000 fewer units than were supplied into the used car market in 2011.

So we can see that the volume of used vehicles going into the used car market in 2012 is likely to be significantly lower than it was in 2011. But what of these units coming back; what can retailers expect?

CAP’s research data shows that over the last three years the average age of a used vehicle has increased by eight months since 2009 to 67 months old in 2011.

Most notable is the increase in the average age of convertibles, 4x4s and executive sector cars which are now on average one year older than in 2009.

Against this trend are city cars which are now six months younger than in 2009.

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