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Used car margins hold their own amid rising trade prices

By Philip Nothard

We all know about the new registration ‘explosion’ over the past 12 months, as manufacturers bounced back from a recessionary economy. With much of this driven by heavy incentivisation, many consumers are therefore naturally questioning whether to switch from their normal buying patterns.

     
 
 

Philip Nothard joined CAP in 2010 as its retail and consumer price editor, analysing pricing data and interpreting strategic market trends. In his role, he is able to apply two decades of experience gained in franchised motor retailers, which culminated in running dealerships for the likes of European Motor Holdings, Lythgoe Motor Group and Arnold Clark.

 
 

The big question, therefore, is whether demand in the used market is being sustained and whether the returns are still there for dealers.  

Before looking at the actual numbers, it is interesting to mine the sentiment of the dealers buying the cars, speaking to the customers and generally being on the ‘front line’ of a changing market.

When we asked a selection of used car specialist dealers, both franchised and independent, back in March 2013, fewer than one per cent felt the current climate was very good, while less than a quarter described it as good.  

When we asked those same dealers in March 2014, the very good figure rose to 8.8%. Even more positively, the percentage who felt the business climate was good had risen more than 10 percentage points to 34.2%. But why?

We correlate this improvement in mood with figures that show dealers were finding it much easier to source the right cars for stock. Expressed in terms of the difficulty of sourcing the right cars, 31.7% were previously reporting a very tough time in stocking the forecourt, but this has now fallen to just 14.9%.

 

Demand for used cars has been constant and strong over the past 12 months

All our other research indicates that retail demand for used cars has been constant and strong over the past 12 months, so it is clear that the key driver for positive or negative dealer sentiment has been on the supply side.

The other big challenge for dealers – especially when they have been forced to compete harder for limited volumes of stock – has been the maintenance of profit margins.

We all know consumers tend to start the purchase journey on the basis of price, even if in the end they might choose also on the basis of great service and a sense that the dealer is genuinely looking out for their interests. When trade values are forced up, the difficulty switches to pitching your advertised retail prices sufficiently competitively while maintaining a workable margin.

I have reviewed the previous 12 months of both retail advertised and trade prices, across all the sectors, and they are very largely parallel.

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Comments

  • Karl White - 01/05/2014 16:52

    It's amazing to hear that 'the average selling price of a used car' is so high at £39,459. How do you calculate that? Yes, I agree with your conclusions, it seems so, in our sector - nearly new.

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    • Nobby123 - 05/05/2014 16:26

      @Karl White - the average selling price takes in to account the whole market and sectors involved. It's certainly intteresting when you trend both over time, or even down to individual sectors and observe the relationship.

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