Car dealers may be better off returning to their comfort zone

We have consistently stated this year that as the supply of used cars has diminished with the downturn in new car sales, many dealers both franchised and independent are now competing in the retailing of older, higher mileage cars. As the used car market has recently shown signs of levelling off, this approach has introduced some caution in the minds of dealers who are now starting to see margins diminish as retail prices come under pressure.

With many sales mangers having never experienced a market where used cars actually appreciate in value, it now looks as though the rich pickings to be had for most of this year will now be replaced by an attitude of second-guessing the market and maximising every opportunity to take a profit.

Unfortunately for many dealers the foray into selling older cars will be doomed to failure. Although many can value a car from the outside it has been the hidden costs of maintenance and refurbishment which have proved the downfall of many a dealer. After all, when a car gets to a certain age, no matter how much care has been taken and money has been spent keeping it road-worthy, the cost of producing a retail ready 5 year old 60,000 mile car can often run into £000’s. This in turn can lead to a sales manager conundrum:

“Am I working for the service dept? And

“If I don’t retail this car could I still make a profit at auction?”

These kinds of questions are only usually answered successfully with years of experience and because of the upturn in used car sales this year dealers have had to come out of their comfort zone to try and sell cars which would normally fall way outside their normal selling criteria. They have had to do this in order to combat the ”you can’t sell empty spaces” mantra.

The problem now, of course, is that with buyers realising that retail prices have peaked they will no longer be prepared to pay the uplift on an older car from a main dealer, and with labour rates often way over £100 per hour the dealer can longer afford to sell them. The other fly in this particularly unpleasant ointment is that this is a time when demand traditionally reduces anyway.

The saving grace, which will probably prevent dealers slashing prices, is that the evidence points towards there being no long term signs of an increase in large numbers of vehicles entering the used car market.

Maybe by many dealers reverting to what they know will sell and passing up on the older cars (the ones they reluctantly attempted to retail previously) it will lead to a much more harmonious marketplace.