Trade prices for used cars have reached such a high level that dealers relying on finance and insurance (F&I) for profitability, the Vehicle Remarketing Association (RMA) has said.
The VRA said that prices for good quality used cars have reached a level where it is “almost impossible” for many dealers to make a profit on the windscreen price and they are instead relying on returns from their F&I department.
The organisation says that demand in the used sector for almost all kinds of stock is at levels that makes buying at what dealers would consider sensible prices extremely difficult.
VRA chairman Glenn Sturley, said: “If you gather two or more motor trade people in one room at the moment, the talk is inevitably about the level of trade pricing.
“I’ve been in the industry since the 1960s and I can recall few moments like this when demand was driving prices so close to retail levels.
“Of course, this is good news if you are disposing of vehicles but bad news if you are buying and it is prompting dealers to shift the emphasis when it comes to realising profits, with many putting a lot more effort into F&I, as well as a push on warranties, service plans and more.
“Certainly, many people who have bought a used car in the last few months will probably have noticed a very strong emphasis on making them aware of the advantages of buying a large range of finance, insurance and add-on products from the dealer.”
Speaking to AM this week, on independent used car retailer said that the growth of used car supermarkets was to blame for the trend towards ever-higher demand for used car stock and an accompanying growth in values.
He said: “The rate of stock turn at a used car supermarket means that they can afford to make no margin on the car and simply drive profitability through F&I. That leaves a lot of dealers unable to compete.”
Sturley said that the situation was bringing about an increased demand for grade 2 and 3 cars from buyers who, in the past, would only consider grade 1 vehicles.
He added: “Also, there are reports of increased footfall at physical auctions, signifying a slight reverse in the move towards online that has been underway for many years.
“People are, to some degree, desperate for the right stock and are having to spend more time actively pursuing it.”
Sturley said that the VRA expected the used car pricing situation to persist into Q1 of 2019.
He added: “We expect to see dealers continue to work hard at finding other ways of extracting profit from the sales process over the next few months.”