Stock shortages and a halt to the slide in residual values

As we approach the end of the first month of 2009 there is a strong suggestion in the trade that when the valuation guides are published shortly we could see a strange phenomenon for a recession – little or no depreciation of used cars. There is even a prediction in some quarters that after the turmoil of the last half year the projected “book drops” will be the lowest for 12 months! The reasons for this anomaly are many and speculative and speaking to trade insiders there have been, of course, the usual theories: – the time of year, lack of stock, great deals, the massive gap between new and nearly new and so on. Clearly these factors are relevant but given that auction houses are reporting record sales figures and car supermarkets – who are struggling to find their usual profile of stock on the wholesale market – are crossing into the territory of the franchised dealers in an attempt to keep their sites bulging with cars, then there may be a lot more to it.

Some dealers are so short of stock they are saying their sites look like closing down events and one exasperated sales manager was even told that by a customer that he thought he should “get in quick” before the dreaded day arrived.

So where is all this money coming from and why is it being spent when we are told that we are officially in recession (as if we hadn’t noticed) and job losses are accelerating and expected to continue to do so. What has made customers decide that now more than ever it is time to buy? Are they listening to MTI and the advice we have been giving in grabbing a bargain, or as one trader told me is “this it” for the year? Will this be as good as it gets? Again we have been in contact with professionals who have been associated with the trade nearly all their working lives who cannot confidently tell you or predict why, when and what the eventual outcome will be.

The stock shortages are expected to continue until early to late march and there will clearly not be the usual influx of new car part exchanges come plate change time because buyers are obviously favouring used. A smaller offering of rental cars back in the used car system is probably the only way that prices will remain as low as at present.

We have heard that some manufacturers are going to increase RRP’s against a backdrop of exchange rate issues and drops in production, which at best is worrying and at worst could be suicidal. One thing is for sure; in the rest of 2009 the only way a motor car business will keep profitable is by selling used cars, finance and workshop hours and certainly not by striving just to keep the manufacturers name above the door.