Car Market Trends - May 2010

The SMMT reported registrations of 397,383 registrations for March, representing a year-on-year increase of 26.6%. Whilst the lion’s share of this increase was from the private sector (up 53.5%) the fleet sector also made a very significant contribution (up 41.3%). The key point is that March represented the biggest selling month for 2 years and, therefore, there would inevitably be a knock-on effect to the used car market as we shall discuss later.

It was also interesting to note that 15% of the total monthly registrations took place on the last day of the month. This was heavily influenced by customers wanting to avoid the Showroom Tax (i.e. 1st year VED) due to take effect on 1st April. Thankfully, it had far less to do with manufacturer or dealer registration exercises. The feedback from dealers was that there was very little necessity to resume this practice because sales targets were being met from a natural market demand. Where the choice was made to register ‘10’ plates it was often to create a nearly new car offering to customers in the absence of late used cars. So the decision was based on the dealers profit opportunity rather than the manufacturer’s exerting their will to ‘notch up’ another registration

Used retail demand

The last two weeks in March continued the same positive trend established in the earlier part of the month with sales volumes and profit margins very much in line with the plan. April signalled a change in fortunes which coincided with the Easter weekend. Not only did this prove to be a little bit of a non event, and typical of previous years, but the following week became an extended holiday break for many and the purchase of a used car was not on many consumers’ agendas. Thereafter, the market reaffirmed that March was, in fact, the peak selling month for 2010 as retail demand continued at this lower level. However, it was fair to say that, because many franchised dealers had made an assault on maximizing the new car sales opportunities in March, serving the needs of used car customers had been a secondary consideration until the early part of April. It is also worth noting that the March used car sales performances would have been bolstered slightly from retail interest deferred from the earlier bad weather.

Used car stock

The impact of the new registration month was immediate and significant. Even though dealers reported varying numbers of retailable part-exchanges some shortfalls were met. Additionally, dealer demonstrators entered used car stocks although some dealers had forward sold some of these units. It was the retail slowdown, and the anticipation that sales were likely to track at these levels, that led many dealers to believe that the balance of physical stock and anticipated demand was now out of kilter. However, stock shortages still existed, and this occurred because of a lack of late used supply with certain manufacturer’s product. On a positive note, ageing used stock was not generally an immediate concern, but dealers were taking proactive steps to ensure that the problem did not arise.

Wholesale supply

The auction supply started increasing from a relatively low base during the second half of March mainly from unwanted dealer part exchanges. This is the start of a normal cycle of increased supply following the peak selling months of March and September. The difference this March is that the used car market has to suffer the ‘fallout’ from the biggest new car sales month for two years. These higher volumes reaching the auction halls continued unabated through the first 3 weeks in April. In addition, the recovery in new fleet business for March also had the effect of creating defleeted cars to swell the overall numbers. The expectation was that when fleet registrations started to recover it would be immediately followed with higher numbers of slightly older, and higher mileage, ex fleet cars that had been the subject of contract extensions. In the event, the additional numbers were modest, but at the time of writing there was still time for this situation to change. It is quite possible that the arrival of these cars will be typified by additional age (i.e.  4 to 5 months) rather than an appreciable increase in mileage. This will occur if fleets have been successful curtailing what they consider to be unnecessary business travel during the last 12 months.

Wholesale demand

Just as the supply increased the trade demand started to ease back. This was evident in the post Easter period. Encouragingly, attendance levels for physical and on-line sales continued to be quite high, and bidding was brisk, but on a narrower spectrum of used cars. As is always the case when the market starts to turn down it is the ‘ready to retail stock’ that remains more resilient to demand and prices. The 4x4 sector still defied gravity, but there were signs that the peak had been reached. Convertibles witnessed a much broader recovery encompassing all the brands.

By mid April conversion rates had fallen by between 3% and 5% compared to the previous month. Auctioneers were having to work had in order to extract bids, and dealer Disposal Managers were finding it more difficult to reconcile the high stand-in values – set 3 to 4 weeks earlier by the branches – with the best bids. It was the first suggestion that there had been some over trading by dealers eager to win business during March as they started to give too generously for part exchanges.

Late plate supply and demand

In many respects this area of the market continued to be more robust. This was a function of the limited supply from manufacturers and evidenced by the continued positive performances at closed sales. There was some limited availability from rental companies but the age and mileage parameters were a little excessive to make them prime retail stock. Provided there was no necessity to buy particular types and ranges of late used cars, the supply would not be described as short.

Prices

For our benchmark 3 year old cars from the volume segments, prices reached a peak towards the end of March and have made a gentle decent to the middle part of April. The degree of downward adjustment only amounted to 1%, yet there were a few manufacturers that were lifting prices slightly on certain model lines over this period.

Prospects

Dealers will be moderating their sales expectations over the coming weeks, not just because of the distraction caused by the General Election but because the second quarter is always considered to be more of a challenge. This means that trading buying activities will also be scaled back. At the same time the wholesale market will still be very busy processing the large numbers of unwanted cars from their vendors with increasing degrees of difficulty. Given this likely scenario, prices may well fall at an accelerated rate and this will be reflective of the more normal trading patterns we experienced prior to 2008.

Guide values

We have applied a slight reduction rarely exceeding 2%. There have also been increases applied to some late used models in limited supply, and more generally, to those cars coming into season.

There was an argument to apply greater reductions but the latest prices indicated more strength than the market sentiment.