Car dealers get the jitters

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Unfortunately the austerity measures currently being proposed will without doubt have a de-stabilising effect on the car market. We are hearing of large volumes of cars unsold at auctions, and prices in the region of ‘cap below average’. Although most commentators predict this is a temporary measure given the long term fact that there will be a shortage of cars, it is still causing dealers to re-evaluate the valuations they give on customer part exchanges.

In times like these, when car buyers are price conscious as a rule, and want as much as possible for their hard earned money, basic ‘poverty’ model cars are really only sold if they are frighteningly cheap. This is fine unless you happen to own one in which case dealers will need to have plenty of sweet tea available to deal with the cases of extreme shock when the owner attempts to trade in for a new one.

Of course, as we know, this is mostly relative given that in theory the car in which you are interested will be cheaper or, at least in quieter times, a dealer will be keener to do a deal and therefore if everybody works a little harder, doing business should still be possible.

The intriguing aspect of the car business especially in the UK is how vulnerable it is to immediate change, it is only a matter of weeks ago that volume and profits were through the roof and the cigars were being lit, fast forward to the here and now and the situation is markedly different.

Normally this adjustment would be coped with and acknowledged, but given the unprecedented changes due to, amongst others, the scrappage scheme, the 2.5% reduction in VAT and the fact that factories just stopped building so many cars, the stoked up demand and undersupply gave dealers the belief that on the back of consistent and historical month on month increase in car values, the car sales business had changed forever.

Actually when I look back on my years in the business I recall always thinking that May was a strangely quiet month with bank holidays, the first of the sunshine and a feel good factor from the buoyancy of q1.

Of course this year we have had an election, more doom and gloom surrounding the prospect of cuts and tax hikes, but also the world cup looming, and although companies selling flat screen TV’s are probably saying ‘what recession’ the car trade feels nervous and unsure.

Some will panic, heavily reduce prices to try and attract customers and reduce stock and working capital and some will see this for what it hopefully is; a temporary slowdown due to the aforementioned factors.

Of course customers who are hoping to gain the best price for their existing car may just find that getting an accurate value might not be that easy as prices could vary wildly. This is when it really does come down to an opinion and of course how the dealer expects to re-use your car,

For example if a dealer is not going to re-cycle your car for retail sale on their display then they may not be in a position to adjust the price they give accordingly, and if they dispose of their unwanted trade-ins through auction they are then of course exposed to the valuation mechanisms present in this market. During good times this can bring great rewards and give confidence when valuing a customer’s car so much so that they can afford to stand it in strongly. But when there is oversupply, as there is at present, the price offered can drop drastically as they simply cannot afford to risk losing their profitability on the deal if they get the trade-in valuation wrong.

So from a buyers point of view right now it really can be a lottery based on where you choose to buy your next car, what brand of car you decide on, the models popularity but specifically the expertise and experience of the dealer you visit, because presumably a dealer of long standing will have seen most things and should therefore be more confidant in being able to construct a proposition which a customer will find acceptable. They will have more than one alternative when it comes to disposing of a customer trade-in.

It’s back to basics; research, compare and be on your guard.