It’s never wise to make predictions in a volatile market

As we safely predicted January has indeed been a record month in the world of both used car sales and auction movements. The main auctions at BCA and Manheim have now confirmed that the month of January broke all kinds of volume and profit numbers, indeed BCA stated that their conversion rate was the best since records began. Having sold more than 60,000 cars at record profits, both the vendors and centre’s themselves have every right to be pleased with the start of 2009. We at MTI however would also like to find out the reasons for this amazing phenomenon and if anyone you speak to in the trade with any kind of experience, tells you they predicted what has happened they are probably not being truthful.

Every year there is a bounce back from de-stocking for year end in December to reflect traditionally the quietest month for car sales. We all know, even in the grip of a downturn, consumers caught up in January bargain fever will be looking for a deal on a car, and dealers looking to get the year off to a great start and banish the depression of job losses and doom mongering will look to re-stock with fresh beauties. Then there is the cry from every franchised dealership – and this year it has been even more acute – ‘why didn’t we buy more cars in December when they were cheaper and in plentiful supply?!’ Every year January comes and they bemoan the fact that halfway through January they are paying thousands more in some cases to purchase the same stock on the wholesale market.

Notwithstanding this tradition there’s the fact that this year no motor trade operative, whether a 30 year veteran or fresh faced manager full of testosterone and hope, could ever have predicted the impact of record sales of used cars. There continues to be much speculation as to the how’s and why’s and we too have given theories; historically low interest rates meaning people with mortgages are actually better off, the kamikaze decline in used car values for much of the last half of 2008 are really just correcting themselves, or nearly new cars looking such great value and older cheaper cars being a great alternative to more costly expensive cars and so on. Whatever your theory and whatever the reason – and we believe it is probably a mixture of all these factors – the most important thing is the question of when is someone going to turn off the tap?

Not only that but as the auction numbers tell us, there are some dealers both independent and franchised who are paying out for stock what they may have been retailing it for in December and early January. Not only that but at general and manufacturer closed sales the buying is reaching fever pitch. The only problem to come is if the market does suddenly slow – and let’s face it there is bound to be more bad news on the way – many dealers who lived by the adage ‘you can’t sell empty spaces’ may regret overheating the market in the stampede to stock their sites.

We have spoken to dealers who now bitterly regret selling units at bargain prices and concentrating on volume over profit now they realize that the same stock is almost impossible to replace, especially at the same price. On the other hand if buyers headed our advice and bought in late December early January they, in some cases, could sell their cars for a profit in the current climate! But they did the right thing and should be feeling very pleased with themselves.

Even the good old gas guzzlers are looking terrific value for money and are now becoming fashionable again (what fickle people we are) the irony is that you couldn’t get arrested in one 6 months ago and any dealer or car maker selling one would be pleased to sell at a loss of less than £5,000. Although as stock becomes harder to locate dealers will be forced to raise prices they must hope that buyers stick with them and ‘wear’ the increases when all they have been told in recent months is that the car sales business is on its knees.

Car dealers will have to consider the possibility of selling fewer cars for a larger profit to keep up with budgets and car makers will need to exploit the gap in the market by incentivising dealers to sell new cars. Independents and supermarkets who rely only on used cars will have to broaden their selling criteria by offering higher mileage older cars and warranty companies will probably sell more policies as a result of this. Add to this the news that compared to a few months ago the auctions now have twice the attendees to two thirds of cars on offer then you can really appreciate what changing times we are living through.

MTI would like to make predictions about the future but with what has happened being so amazing it may be best to keep our counsel until we have seen out the first quarter.

All we do know is that February will have been just as frenetic for sales activity when the figures are released and we have a hunch that the guides will remain fairly unchanged or (say it quietly) may even rise.

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One Response to It’s never wise to make predictions in a volatile market

  1. leonie February 26, 2009 at 10:47 pm #

    i,m confused does this mean ishould or shouldnt buy,and is it best to buy a new car or older one,i have set myself a budget of £10ooo and just want to get the best value sporty car for my money,any suggestions??

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