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‘Brave’ used car dealers still delivering strong margins, says Cap HPI

Derren Martin, head of UK valuations at Cap HPI

Valuations experts at Cap HPI have said "brave" used car dealers continue to keep pace with 'unprecedented' value increases to make strong margins, but warned others not to sell too cheaply.

After conceding in the latest edition of AM magazine that “monthly values have gone completely out of the window right now”, head of valuations Derren Martin said this morning (June 28) that live data was vital to keep up with the pace of an “unprecedented” market.

And Cap HPI has underlined the importance of its live valuations service as the pace of wholesale used car price rises continued with a 13.5% increase in the past three months.

Taking to LinkedIn to share Cap HPI’s latest Car Market Overview, he said: “If you only use monthly values for cars, give me a shout as you really need cap Live valuations.”

Cap HPI’s report said that retailers need to be confident their retail prices are keeping pace with the fast-moving market to benefit from the market’s momentum.

It said: “Those dealers that have been brave have recorded strong profit margins, even when the retail research they have carried out has not necessarily suggested putting prices up would allow them to sell.”

Cap HPI’s valuations data and dealer survey responses (as of June 25) showed that May’s 6.7% increase in used car values at three years and 60,000 miles was followed by a 4.8% rise in June.

Cap HPI’s report stated: “If it were not for last month’s figures, this would have been more than double the previous record increase in a month.

“It is equivalent to over £625 average increase, meaning in excess of £1,400 in a two-month period, or almost £1,700 in the last 3-months.

“It is difficult to articulate just how astounding and unusual this is. The only time we have witnessed similar was in 2009, but that was due to a recovery from heavy price drops in 2008. That is not the case in 2020/21.”

Cap HPI’s auction survey revealed the battle that car retailers are having in maintaining stock levels amid ongoing consumer demand and supply challenges prompted by increased competition and high wholesale prices.

While 50% of survey respondents said that they had been able to increase their stock in May, this declined to 13% in June as 40% said their stock had decreased, compared to just a quarter (25%) last month.

The vast majority of retailers are now paying strong prices for customer’s part-exchanges, Cap HPI said, competing with car buying services that have pushed their purchase prices to consumers up by “eye-watering amounts”.

Cap HPI’s said that retail prices had not responded to the market pressures at the same rate as soaring wholesale prices, suggesting dealer margins continue to be put under pressure.

“Some dealers continue to price cars cheaper than they need to”, it said.

Eariler this month Indicata sales director, Jon Mitchell, said car retailers were selling one-in-four used cars too cheaply.

Mitchell said: “From a consumer’s perspective when a used car looks too cheap during an online search, they immediately think it has been wrongly described, or it is likely to have been sold.

“Dealers have to stay in tune with current market prices to help build consumer confidence with online buyers.

"And for the past few weeks that has meant checking market values daily and then increasing rather than reducing prices.”

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