Used car prices go beyond simple supply and demand

Most seasoned industry players say that the reason for continuing price rises is the lack of quality used stock. Clearly with less new cars being built and manufactures cutting back on daily rentals, franchised dealers, who are not generating anywhere near the amount of part exchanges they need, are inflating prices by competing against each other to acquire this stock. Even though many dealers are reporting a significant reduction in demand for used cars, and the easy pickings that come with scrappage business, dealers are left scratching their heads when cars that they have stocked for more than 60 days, are being advertised for less than they would have to pay to replace the same car at auction. Although there is a feeling that late plate models across the board are hard to find, the reality is that dealers are unwittingly conspiring to inflate the prices by entering a market that they may not be used to. As a result they end up paying well over the odds for stock which customers are clearly not prepared to pay the uplift for.

Another factor to consider is that because business was so buoyant earlier in the year, sales people didn’t need to work that hard to make a sale and the hangover from 2008 meant that cars were so cheap that you didn’t really need to be a salesperson at all to sell someone a car. Your average car buyer knew a good deal when it head butted them!

With the introduction of scrappage it meant that because of the profile of customer taking advantage of the scheme, who thought £2,000 off a new car was the deal of a lifetime, sales staff have taken the easy option and some managers are now not sure if their teams are capable of doing what their title suggests, i.e. sell!
Many of our sources tell us that with rising used car prices sales people can no longer show customers a massive saving against new and therefore take the easier option of upselling to new cars. Although showroom footfall has shown little sign of declining the sales ratios have turned virtually 360 degrees with new cars outselling used cars in some businesses 2-1.

From a customer point of view this can be confusing and for a buyer who wants a car immediately to be told that the new car may not be available for several months due to production delays, means that they then have to decide what constitutes a good saving to have a car right now. But unless they are offered that option by a sales force being encouraged to sell new cars they may end up being more undecided than when they went in.

Some dealers we spoke to said that they cannot wait till the scrappage thing ends, as it was a good short term shot in the arm but not really a sustainable antidote and clearly a distraction for many people. The reality is that over the past years more cars have been produced than are realistically needed and this has led to pre-registrations and false markets.

Now we all need to be aware that supply and demand needs to be much closer together to ensure a balance between registrations and price.