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Used car dealers fail on the funding issue

Research commissioned by wholesale stocking plan provider NextGear Capital UK has revealed that 96% of used vehicle dealers fund their business in a manner it says is not fit for purpose.

Harris Interactive interviewed 400 used vehicle dealers about various elements of their businesses, including the type of funding used to purchase stock.

One in five of dealers reported they use overdrafts, 35% some form of cash flow funding and 41% use personal funds to run their business.

Only 4% use product-specific funding routes to purchase used vehicles at a time when many dealers are looking to expand their business to take advantage of a buoyant market.

The research also showed that just over half (51%) of respondents purchase used stock at auction, 35% buy stock privately and 39% rely on part exchanges.

The majority depend on selling before they can restock, sometimes resulting in a quiet few days following a busy week, as stock needs to be quickly sourced.

On average, 45% of the respondents surveyed claimed to sell more than 200 vehicles annually.

Dealers from the North East and East Midlands region sold the most vehicles, an average of 228 in a year, followed by Scotland and Northern Ireland with 199 and Midlands and mid-Wales dealers who sold 197 in the 12 month period. South East and South London dealers sold the fewest in a year – 160, predominantly because their sites are slightly smaller.

When it came to stocking levels, 55% said they stock between 20-49 used cars, 12% between 50-99 cars and 23% between 10-19 used vehicles.

Dealers with a turnover less than £250,000 stock 24 used cars on average, while those which turnover more than £1m have 32 units in stock at any one time.

The research gave NextGear Capital a major insight into the UK used market prior to launching its wholesale Stocking Plan in May this year.

The study confirmed its suspicion that the wholesale funding industry was ready for modernisation.

“As a newcomer to the UK market it was important for us to get a handle on the approaches to stock funding. We were genuinely surprised at the limited options available to dealers,” said David Mercer, managing director of NextGear Capital UK.

“By giving dealers the ability to fund 100% of their vehicle purchases via our auction partner network, while providing an option to fund their current stock through our plan, we have captured the industry’s imagination.

"This has helped us underwrite more than £30m of used vehicles in six months of trading which we are extremely proud of,” he concluded.

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