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Overdrafts still the stock funding choice of 9% of car dealers

A survey conducted by NextGear Capital and Cox Automotive has revealed that more than half of used car retailers use a stock funding facility to fill their forcecourts.

But while NextGear Capital’s sales and marketing director concluded that “cash flow remains their priority”, 9% of respondents to the survey said that they still used an overdraft to fund their wholesale purchases.

A statement issued by NextGear Capital said: “When asked to name their dominant source of funding, half of the dealers responding said they used a wholesale finance package or stocking plan versus 38% who opt to use their own capital.

“None claim to use a bank loan, while 9% use an overdraft facility and 3% have an informal loan from friends or family.”

It said that nine-out-of-ten dealers said that they used more than one source of funding, with wholesale finance and their own capital dominating the options chosen.

Halliday said: “The picture this survey paints is an honest reflection of the sentiment we’re hearing from the hundreds of dealers we speak to every week.

“Regardless of the size of their business, cash flow remains their priority.

“The used car market is offering opportunities to dealers who are best able to source and turn the right quality stock quickly and efficiently. Therefore, the number of dealers looking for complementary sources to ensure they have sufficient liquidity to buy the stock they need is rising.”

Sharing the findings of its recent Car Retail Insight Report at the Vehicle Remarketing Association’s (VRA) ‘Challenges of 2019’ Philip Nothard, Cox Automotive’s customer insight and strategy director, said that the record Q3 used car sector performance would be impacted by a shortage of supply triggered by the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) in September.

The Society of Motor Manufacturers and Traders (SMMT) reported a used car sales decline of 2.1% compared with the same period in 2017, with 2,057,457 used transactions taking place in Q3.

Nothard said that, despite a challenging Q4, there is an expectation of stronger performance in the early part of 2019.

He said: “Looking at Q1 we do see annual lift in used cars and a very positive result in comparison to Q1 2018.

”We’ll see some of the supply come back in from the lease sector that was impacted by WLTP and the PCP and the PCP renewals and some return to new car retail in Q1 will boost the sector.”

Halliday will be hoping that retailers continue to consider the stock funding option as competition continues in the used car sector.

She said: “There isn’t a one-size-fits-all approach to stock funding.

“Dealerships have different business requirements, so need to select the route that’s best for their individual circumstances.

“We would always encourage dealers to consider a blend of products so they’re ready to buy from the right source, at the right price, at the right time.

“Ease and flexibility is key, as is considering how associated stocking costs can be mitigated or absorbed to keep margins healthy.”

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