Current sales volumes of new cars in the UK are unsustainable and are a potential threat to the used car market, according to valuation specialist Glass's.
New car sales have increased to levels not seen since 2004, and it is predicted that if this growth continues we will see UK registrations reaching 2.4 million by the end of the year, according to Society of Motor Manufacturer and Trader figures released today.
Glass’s believes that these rates are artificially high and have only been achieved by tempting prospective buyers out of used car purchases or persuading them to shorten their usual replacement cycle.
“We can see that this is already having a negative effect on the used car sector,” said Rupert Pontin, Glass’s chief car editor (pictured).
“Trade prices are down compared to this time last year. Values generally dip in June, but this year we have seen a 3% drop rather than the normal 1.5%. Quite simply, if more consumers are buying new cars, there is less demand for used cars.”
“One major factor behind the trend is the increase in gross domestic product as we come out of the recession, which is stimulating demand from car buyers.
"The pattern may be tempered by a future hike in interest rates but the availability of PCP (Personal Contract Purchase) and other persuasive deals, which make new cars an easier and more attractive option these days, is sure to keep sales high.
“A combination of recovering fleet sales and rising PCP sales since March 2011 has resulted in a flood of vehicles into the used car market now, creating a situation of oversupply and under-demand.
"On top of that, OEMs and franchised dealers are starting to terminate PCP and three-year purchase deals early, and signing existing PCP customers up to new deals, in an effort to retain market share and loyalty.”
Glass’s also highlights that vehicles sold under the government scrappage scheme during 2009/10 were sold to "unnatural" new car buyers whose lengthened hold periods kept these vehicles out of the supply chain until now.
However, these vehicles are also now beginning to enter the used market, adding to the used car surplus. Until now, used car prices have been held at high levels as demand growth has kept pace with supply growth, but acceleration in supply growth is anticipated.
Pontin fears that worse may be yet to come: “The other major European car markets have now turned the corner in terms of demand, and yet they remain far below pre-recession highs. With the pound ever-strengthening against the euro, OEMs may be tempted to increase discounts in the UK to secure volume – and that will only exacerbate the problem.”