Supply shortage fueling used car prices

There is a simple reason for the massive price correction on used cars at present, supply. With the new car market consistently down year-on-year, quite simply not as many cars are being built therefore not as many used cars will be generated as a result. The interesting aspect from a frustrated dealers point of view is that prices are actually similar to where they were in Jan 2008.The perception is prices have gone through the roof and the lack of supply means they have definitely strengthened but really the underlying factor is that because 2008 saw suchan unprecedented destruction of used car values the rise back up seems just as spectacular. Of course many dealers have still acted very cautiously and kept their inventories deliberately low for fear of a repeat of last year’s financial haemorrhage. Perhaps now, after 6 months of 2009 and a recession busting used car performance, the confidence factor is rapidly coming back leading to more increases in values.

The news is that the situation regarding stock availability is unlikely to change much in the second half of 2009 and although higher prices are not necessarily being fuelled by high and constant customer demand, there is a steadiness about car sales at present which is comforting to dealers and encouraging for future residual values.

We have had many reports of dealers, from across the used car spectrum, smashing their budgeted volume and profit targets and individual profit per unit has also remained solid due to prices rising steadily over this year.

Any units which need to be moved on to comply with the ageing policies are unlikely to lose much money as replacing similar cars is likely to be more costly than when the stock was bought 60-90 days ago, so swapping from dealer to dealer within a group or holding the retail margin is far easier to justify and ultimately a lot more cost effective.

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