Car Market Trends - April 2010

The SMMT reported that registrations for February were 26.4% up compared to a year earlier giving an upbeat year-to-date position of 28.7%. Whilst Scrappage continued to account for almost 20% of this year’s sales total, there have been some tentative signs of sales recovery from the Fleet and Business sectors over the first 2 months recording an uplift of 17% and 8.8% respectively.

The very positive feedback we received from the market in the first 2 weeks of March was pointing towards a bumper month for new car sales. This improvement was coming from all sectors, and a March total of between 400,000 and 410,000 units was well within the bounds of possibility. This would represent an improvement of around 30% over March of last year and stand as the best selling month for 2 years. We should also be mindful that this March was the last opportunity for orders to be placed under the Scrappage Scheme. Manufacturers have devised a range of new promotional offers to mitigate some of the lost business that will inevitably follow the termination of the Scheme. They also sense that a ‘push’ on sales in the first few months will provide them with a cushion for more difficult trading conditions expected after the Election.

Used retail sales

The gathering momentum we reported last month continued into the first two weeks of March. It was generally felt that that business had returned to the levels forecast by dealers at the beginning of the year. To some extent the sales lost to the bad weather had been recovered.

Dealer stocks

Dealers have been on the stock acquisition trail but with a degree of caution and selectivity. Specification, condition and provenance were considered paramount where choice was afforded by the wholesale market and their manufacturer partners. However, many felt that it was becoming progressively difficult to track down the ‘right’ cars.

The very close attention to the management of stock did have the advantages that turnover was swift and over age was virtually non existent. There was a strong sense that dealers were adopting a deliberate policy of keeping stock numbers on the low side as a hedge against a possible market downturn.

Wholesale market

As is normal for the time of year the volumes of cars at auction reduced steadily creating slightly more competition for what remained. However, whilst auction business could be described as brisk, it bore little resemblance to the frenzied state of affairs 12 months ago. Those attending auctions in recent weeks would have experienced conditions similar to the seasonal upturn in 2006 and 2007.

Not surprisingly, convertibles received greater attention but, more interestingly, 4x4s still took centre stage. This is because dealers were still very keen to replace their much depleted stocks following the bad weather. Many were also very encouraged to see that the customer mindset towards 4x4s had improved markedly leading to more retail interest despite the passing of the bad weather. 4x4s along with luxury saloons have also been the target of exporters who have found lucrative markets in places like Cyprus and parts of Asia. What has not been in evidence to any significant degree are defleeted cars that have been held on an extended period of duty.

Trade prices

The very different nature of the used car market is best illustrated with reference to the changes in used car prices for popular 3 year old cars. In February 2009 prices increased from the previous month by almost 9%. This year the increase was only just over 2%. More encouragingly, during the first week in March prices increased by almost 3.5% with the following week showing a further 1.5% improvement.

Prospects

On the balance of probabilities it is very likely that we will be moving into a quieter phase brought on by the expected seasonal decline in retail activity and aggravated by the likely distraction of a General Election in early May. We are also mindful that, if March is the best selling month for new cars in two years, there will be a significant number of part-exchanges and defleets for the market to absorb in April and May, and less appetite from dealers to buy them. What will limit the ‘damage’ is the fact that around 20% of new car sales will be to Scrappage customers. These transactions do not create any retailable part-exchanges, only cars destined for the dismantlers. There is also the distinct possibility that fleets will be supplying the wholesale market with cars that have gone beyond the normal age and mileage parameters of 3 years and 60,000 miles. Given that market conditions generally are likely to be less favourable in the coming weeks and months, these are the cars that dealers will only choose to buy when the price differential to the ‘ready to retail’ stock gets much wider.

Guide values

Given the outlook described above, it will be of no surprise to learn that we have reduced values by around 2% for April. The exceptions to this rule would be convertibles coming into season and some 4x4s that are enjoying an extended season.