Used car sales suffer as manufacturers go for broke

As March is now upon us it appears that the car makers scrap for market share is hotting up. Some of our dealers are reporting a 50% increase in new car orders year on year and indeed many have already achieved their March objective and it’s only the 1^st of the month!

Whilst this means many sales execs will have a rather tasty pay packet, on the negative side, especially at franchised dealers, selling used cars has become very difficult to say the least.

There are many theories as to why this should be, including some extraordinary new car incentives which, when marketed correctly, clearly have the desired effect, however it could also be due to human nature. For example, as we have highlighted many times, car buyers have now virtually all bought-in to fund their purchase through a PCP agreement and therefore a new car with zero mileage and potentially healthy residual value – coupled with an incentive or low rate finance from the manufacturer – makes a new car not only very attractive but simply too hard to resist.

Another theory put forward and one which has some resonance with me, is that unlike the old days most sales people are not in split teams now, they are expected to sell new and used cars and as a result will often take the path of least resistance and currently with just so many good deals about, that means selling new.

Of course for the customer this is all good and demonstrates once again the supreme effort being made by car makers and their brand partners in ensuring that the trend is an upward one when it comes to new cars. However (oh there is always one of them isn’t there?) the downside is that much of this good work is negated by the fact that used car sales in some of our dealers are down significantly but so also are margins. Because dealers cannot have stagnating stock it needs to be turned in a similar way to that of a supermarket with a “sell by” date, an inability to shift it at an optimum time to maximize profitability leads to selling at a loss but also keeping used stock for longer than desirable leading to unnecessary expense.

This situation will change in time and we only need to look at the blistering money that 3-10 year old cars are currently achieving at auction to know that there are clearly buyers for certain cars out there. Indeed a sales manager told us that the quirkier more “off the wall” model in terms of colour and spec gives a car a unique selling proposition. This means that it is sought after and can be premium priced as a result. These cars can often make up for the newer later plate cars which are in plentiful supply and therefore less likely to achieve the desired profitability.