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Is the used car business becoming more profitable?

By Philip Nothard

While new car registration increases dominate the headlines, CAP research is uncovering a trend of more profitable used car business.

If we begin by reviewing the graph (bottom left) we can clearly see that in the majority of the sectors, the difference between CAP Clean and advertised prices – the best data-based evidence of potential margin – is the widest it has been since 2011. 

In many cases it has actually increased, suggesting greater profit opportunities, with sectors such as city car, convertible and lower medium seeing the largest margins in nearly two years.

However, the picture is not the same for all sectors, as the graph, bottom right, demonstrates.

Perhaps the most interesting correlation here is that these are the sectors seeing the biggest increases in new registrations.

This suggests that the greater volumes here are forcing dealers into more aggressive price positioning. 

We can leave electric vehicles for another discussion, as the margins here are continuing to fall as the sector still seeks true market acceptance.

As many dealers will confirm, quality stock has long been short on the ground and therefore has been commanding top money.

This has undoubtedly led to a reluctance to sacrifice margin because the volume to make up for it just
isn’t there.

Our own research confirms this reluctance, with one dealer revealing that his overall average discount is less than £50 from the advertised retail price and another stating that they realise advertised prices at least 95% of the time.

As well as increases in ‘metal’ profit, many others are reporting increases in their average finance balance too, along with more ‘add-on’ business.

One dealer group reported having the best ever performance in May with profit margins up year-on-year across all areas within the business.

Another pointed out that, even with the recent slight fall in trade values, they have no intention to reduce their retail advertised prices in the short term.

As long as they are generating the enquiries and selling what they can buy, why would they?

CAP-published retail values have been adjusted according to all of this fresh evidence.

What appears to have shifted here is dealers’ willingness to give desirable stock away.

And there is little doubt that all the new car business underway in the UK is encouraging more people to change their cars in general.

So used car specialists appear to be taking advantage of all the opportunities that stem from this.

What seems certain, in today’s market, is that those highly-professional dealers who are using all the right supporting tools to help manage their stock and give the retail prospect a reason to visit their website or showroom, are having a successful year so far.



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Comments

  • Robert - 11/07/2013 11:26

    Where are the graphs?

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    • Kevin Conroy - 13/07/2013 10:50

      @Robert -

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  • Dave Royal - 15/07/2013 23:56

    It's great to see a rise in return on investment, particularly for dealer groups who deliver value, quality and a positive experience. The challenge will come however in maintaining this as its possible the wholesale value of used cars has dropped due to manufacturer discounts on new cars making nearly new values lower. Whilst the retail price has not been affected, this will catch up presenting dealers with high stock volumes exposed to the possible drop in retail values. Brands who have protected their residual values like Volkswagen and Audi will stay robust with residual values not bring compromised.

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