BCA report says supply issues could force up the value of used cars

According to new data from British Car Auctions (BCA) sales of used vehicles continue to play a vital role in sustaining the UK motor industry.

BCA’s Report reveals in 2010 used car volumes rose to 6.8 million and the overall market value increased to a record breaking £35 billion as the used car market continued to lead the recovery in the motor industry. An additional 270,000 used cars were sold compared to 2009, generating an extra £800 million in value.

The average used car selling price slipped year on year, however, from £5,422 in 2009 to £5,332 in 2010, reflecting the changing mix of the used car supply in the UK.

Stronger sales of cars in the 6-8 year age group in 2010 helped used car market volumes rise by 4.3% (270,000 units) last year as sales of younger used cars faltered. BCA data also shows that the average mileage of used cars when sold has been rising over time and reached nearly 59,000 in the first half of this year, another market highpoint.

Lack of supply of good quality 2-5 year old used cars is a significant concern

But looking ahead, the Report also suggests that a lack of supply of good quality 2-5 year old used cars is a significant concern for the UK motor industry. With fewer new cars being sold since the economic meltdown in 2008, the available supply of used cars is getting relatively older and of a higher mileage. This will create more competition and expense for dealers to source younger, retail quality used cars and could result in prices rising for motorists when they next change their car.

Since 2008 around 500,000 fewer new cars are sold every year and industry forecasts suggest this pattern is unlikely to change before 2012. As the BCA Used Car Market Report points out, you cannot remove over two million new car sales from the used car supply chain without creating some waves in the marketplace.

UK car parc getting older

While the number of cars in the UK (the car parc) will remain around 30 million units for the foreseeable future, the parc is ageing rapidly and ‘younger’ used cars will become an increasingly scarce commodity.

“The simple fact is the UK car parc is getting older, as fewer new cars are sold and both motorists and businesses have held onto their vehicles for longer” said Tony Gannon, Communications Director, BCA. “The average age of cars on UK roads rose in 2010 to 7.25 years, which is a 14 year high. The trend for older cars is rising and we believe this could continue for several years to come.”

Will motorists be able to source the cars they need?

As well as analysing sales data for 2010, the BCA Used Car Market Report looks at consumer motoring habits and car buying behaviours.

The findings of research conducted amongst 4,000 motorists* reveal that price remains the most critical factor for used car buyers, with 40% saying this would be their first priority. After make and model at 35%, low mileage is the third most important factor for used car buyers at 28%.

Gannon commented: “Low mileage is likely to remain a highly desirable factor for used car buyers but will become increasingly difficult to source, because examples will be relatively scarce compared to five years ago.”

Car ownership patterns changing

The BCA research shows that the economic downturn has had a marked impact on the pattern of UK car ownership. Overall, 5% fewer families (72%) have at least one car, compared to 2010, with the biggest drop being seen in the number of two-car households.

“What this data suggests is that households have been making some hard decisions about what vehicles they need to stay mobile”, continued Tony Gannon. “With a drop in two-car families, this means the remaining car will have to ‘work’ that much harder. We are likely to see households keeping cars for longer and not changing them until mileages are much higher.”

The BCA report also suggests that families will be looking for smaller, more practical and economic vehicles as household budgets get squeezed. Petrol power remains preferable for most buyers when considering their next car and this could be at odds with the supply of used cars from company fleets and businesses which often run larger, well-specified diesel-powered models.

“Our research shows that motorists have several measures in mind to curtail their frontline motoring costs”, added Tony Gannon. “Top of the list is buying a car with better fuel consumption – at 27%. But demand for these types of vehicles could well outstrip supply, pushing up prices as a consequence.”

“The next 12-18 months are going to be a very challenging period for the UK motor industry. The potential supply shortage of younger used cars over the next few years may create upward pressure on used vehicle prices, while economic pressures may lead to reduced demand which will push prices downwards. Which of those two levers will be the stronger remains to be seen?”

* Consumer research by BMRB International, based on interviews with 4,000 respondents, representative of the UK adult population aged 17 years and over. Fieldwork for this research was undertaken during March 2011.

News Source: BCA