With used car prices too high are new cars looking good again?

The dynamics of car sales in this country has always meant that, for dealers, selling used cars is at least as important as selling new, although clearly for car manufacturers the ratios would be better reversed. In fact in figures released by SMMT and Experian sales of used cars in the first three months of 2009 showed used car volumes down only marginally on 2008 to 1,813,588 or 4.3% compared to -29.7% for new vehicles in the same period. So far, for most of this year, with new car sales in the doldrums and negative year on year to the tune of 30%, dealers have been making great profits from selling lots of used cars and increasing the amount of finance packages these extra sales bring.

With the major and sudden decline in used car values at the end of 2008 and performing a complete turnaround up to this point, buyers have been seduced with massive savings on nearly new models which have now virtually ended. With the scrappage scheme bought in to redress the balance, it seems for some dealers that the pendulum has swung too far the other way and new car profitability is starting to support the fall in used car volumes and profits.

This ultimately could create more problems than the scrappage scheme was supposed to solve. With quality used cars now a virtual endangered species, prices on the wholesale markets have reached ridiculous levels which, unfortunately, desperate buyers are still prepared to pay. This ensures that prices continue to rise and margins continue to come under severe pressure.

For the car buyer, whether new or used, in a position to make a purchase it would be difficult to know which way to advise at present. With the gap between new and used closing and the price of new set to rise due to the weakness of the pound, it is very difficult to call the market, and certainly with scrappage not able to generate any retailable trade-ins the used car market is suffering with a massive lack of stock and choice. Dealers who may have traditionally dealt at the lower end of the market may now be moving on to the next level ensuring a knock on effect which ultimately just drives prices even higher and will ultimately be passed on to customers.

When the scrappage scheme ends shortly it will be interesting to see if the new car sales arena can enjoy continued momentum that the scheme has bought and that manufacturers and dealers can make offers attractive enough to keep the market buoyant.