The Vehicle Remarketing Association (VRA) has launched a monthly headline report into the remarketing sector. It looks at a number of the factors which drive supply and demand across the entire industry, taking input directly from its 50 large corporate members who between them handle more than 1.5 million used vehicles per annum.
Designed to act as a market commentary rather than a detailed report, ‘Remarketing Update Monthly’ takes a snapshot look at the prevailing dynamics and the likely short term outlook for supply and demand.
“By having such a diverse membership base covering major inventory owners, plus the leading suppliers of the broad range of remarketing services, we are able to take a pretty comprehensive view across all sectors. Remarketing is the true barometer of the automotive industry and we believe our new monthly commentary will be a very useful market indicator,” explained John Davies, chairman of the VRA.
After a slow retail month for new cars in March generating fewer part exchanges for dealers, used car supply continues to struggle to keep up with demand. However, VRA members report that used retail demand seemed to peak in early to mid March, slowing down slightly towards the end of the month.
Many car manufacturers are reporting much lower used car stocks on dealer network forecourts than is customary at this time of year, with some suggesting it could be as much as 15% down. Generally, this simply reflects the shortage and availability of retail quality stock.
In the fleet sector, increased delivery delays from manufacturers are making the used car supply situation worse, as leasing companies see fewer cars coming back for remarketing. Many customers have been waiting for 6 – 9 months depending on the brand; with customers being forced to extend contracts until their new cars arrive.
Those cars that do arrive in the country as sold orders are being rapidly prepared at the port of entry and delivered to dealers with minimal delay.
Further compounding the problem are a number of companies who, having already extended contracts from three to four years, are now faced with the unexpected new car supply problems and find themselves looking at even further extensions of up to five years.
A by-product of these increased contract extensions is a rise in both the incidence of damage on returning vehicles plus an increase in the average value of damage and thus recharges. This trend is set to continue for some time if companies continue to increase replacement cycles to cater for longer delivery periods.
At the front end, leasing companies are reporting strong demand for new cars being supplied on contract hire, but these of course will not be fed into the used market for at least another 2 to 3 years, therefore not helping the current used vehicle supply issue.
Values and demand
Prices in March rose in the first half and levelled off in the last two weeks, resulting in a small overall rise for the month but less than would be expected at this time of year. Auction conversion rates very much reflected this trend, falling by as much as 5% in the latter half of the month compared with the beginning.
Perhaps the early signs of shifting behaviour, driven by the slow economic recovery are now being felt, with values of most small and medium vehicles remaining fairly strong, whist prices of compact executive and larger executive models came under pressure. Used car buyers seem now to be seriously considering whether 3.0 litre versions of the same model are really that much more attractive that the 2.0 to 2.5 litre versions. Some high-end value 4x4s, including Range Rovers, also saw prices fall in March with later models coming off by as much as £1,000 - £1,500.
Particularly noticeable was a weakening appetite for very high mileage cars - over 100K miles - and unless price adjustments are made to reflect these levels of usage, many will struggle to find new homes over the coming months. This will be even further exacerbated where disproportionate damage is present.
Some franchised dealers are being more creative with their older part exchanges as they explore new areas of revenue and profitability. Instead of putting part exchanges straight into auction, some are setting up small used car pitches under a separate brand and are selling these older cars directly to the public. The 400,000 older cars taken out of the loop through the recent scrappage scheme means there is a strong market for 5-10 year old stock. Prices of older cars remain quite buoyant.
This in turn, is providing some food for thought for the manufacturers who have to look at the parameters and suitability of their approved used programmes in the light of more dealers retailing older stock. Warranties and other elements of the programmes are also coming under scrutiny and review, as the average age of used stock on forecourts increases.
In the commercial vehicles market, used vans continue to be very strong with high demand across all stock categories and prices staying strong. Because of some national business failures there is a healthy supply of used vans coming into the market over the next few months but, once this dries up later in the year, supply will be more restricted and predicted to force up prices to an all time high.
Looking ahead, April is already being viewed as a potential challenging month for new and used car sales and this will be further compounded by the four public holidays and distractions of the Easter school break and a Royal wedding, falling at the end of the month. We’ll just have to wait and see how much of an issue this becomes for the used vehicle industry, but the signs on the high street generally suggest that retailers are not confident and have already begun heavy discounting in advance of the disruption.