An increasing problem being experienced at present -on top of everything else – which is hurting the trade is the dilemma faced by many independent and franchised dealers when it comes to pricing their stock.
Because of the ever changing and rapidly moving market a car they may purchase for used car stock at a very competitive price is then priced up on the forecourt and is hopefully attractive enough for a potential customer to want to buy. The dealer will carefully compare their own example with the competition whilst also taking into account the spec, mileage, colour, condition etc. However because the dealer pool now has to compete for fewer customers this research into accurately pricing his car has now become more important than ever. Whilst he needs to try and pass on the saving he has made to his customer to keep the telephone ringing with prospective enquiries, he also needs to balance this by anticipating a customer who may have a drastically de-valued car to trade-in and have enough profit left for an over-allowance.
Although customers have a desire to buy another car and dealers obviously want to sell them one, the problem is that many dealers are increasingly not accepting part-exchanges due to financial stocking restraints, the customer being half way through a finance agreement and in deep negative equity, or else just cannot accept the low value of their existing car and therefore decides to keep it.
The dealers other dilemma is that he knows value for money is often about personal perception. For example many customers over the years have paid thousands of pounds more for a certain car just to have the right colour and spec – even though a compromise would be far cheaper – simply because that is the car they want and that is how they measure the value of the purchase.
In a lot of cases though if a customer sees a cheap car he might like to buy he may first wonder why it’s so cheap and also have a perceived valuation of his own car on which he is not prepared to compromise. But if the dealer really has priced the car to sell quickly (even a rare example) he may take many calls but not actually sell. On the other hand if he builds in enough profit to allow him to make an over allowance on the trade-in and therefore meet the customers perceived valuation of the deal, he may not get any calls on the car because it is deemed too expensive. All quite complicated but a very real problem facing the motor trade every day at present.
In addition the level of VT’s (voluntary terminations) are costing finance companies millions of pounds and losing dealers an opportunity to sell cars on a monthly payment due to a lack of deposit. If a customer wants to downgrade his car because he can no longer afford the monthly payments and he then finds his car is worth considerably less than he owes the finance company then it is often more cost effective to give the car back and buy a cheap car at auction or on e-bay.
When will the situation ease? It’s hard to predict, all we can say with some certainty is that lessons will have to be learned and cars will have to be cheaper and more cost effective if the customers are to come back to the market in the right volumes.
Hopefully there will still be some businesses left to serve them.