Part-exchanges – supply and demand equals rising prices

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It may seem fairly obvious to most in the trade, that with a near 30% decline in new car sales over the previous few months the level of used car part exchanges would likely diminish accordingly. Dealers are currently reporting brisk showroom traffic and genuine demand but a real issue with acquiring value for money, retail-worthy stock. With March now in full flow and the first plate change of the year likely to increase the amount of stock produced from trade-ins, dealers are hoping that demand continues to be strong and that customerswill ‘wear’ the increases in used car prices. As we have widely reported wholesale prices have increased by as much as 6% in some areas since the dark days of December 2008 and this coupled with the spectre of a 30% drop in March part-exchanges means stock will continue to be hard to source and will therefore become more expensive to buy. This leaves franchised dealers with no choice but to compromise profit margins, which up to now have been – considering how far into the recession we are and the absolute doom laden last 6 months of 2008 – extremely good.

Dealers attending auctions to purchase stock to replenish their sites during this mini-boom have told us of cars making ‘crazy prices’ and have observed competitors prepared to pay way over the odds to avoid having gaps on their displays. This is all well and good unless customers, who up to now have been encouraged back to the late plate market because of fantastic savings, decide that the savings are no longer great enough and leave the same dealers with well above market value stock!
Another point to consider is that with manufacturers falling over themselves to re-invigorate the new car market there will be some amazing new car offers for the un-sold stock we have seen floating around Europe and this will surely put more pressure on the prices paid for the 6 month – 1 year old stock which some are paying top prices for.

Trade guides have increased car values by nearly 3% across the board, which some industry heavyweights insist is not enough to reflect supply and demand of the retail and wholesale markets. The shortage of stock and bigger volume of buyers is a complete contrast to the situation pre-Christmas and with nobody being able to fully explain the current resurgence equally nobody can really predict the future. One thing is for sure; with dwindling new car sales and pressure on prices of used cars businesses will need to increasingly look at their after-sales operations and their finance departments to keep the doors open for business in 2009.

Our advice for buyers is to hang on until around 3rd week of march just to see what new car offers are available for their chosen model and also to see the choice and selection of used cars which materialise from trade-ins for new registrations and consider if they are at a more realistic price than at present.