AUTO Trader highlights that the average price of used cars actually fell 1.5 per cent in 2011, compared with 2010.

Research from the firm through its Price Index has found that despite inflation still running at more than four per cent, this 1.5 per cent fall in used car prices is ‘surprising’.

The average used car price in 2011 was £9,018, compared with £9,155 in 2010.

After seven consecutive month-on month price falls, if it were not for more recent increases in November (+1.45 per cent) and December (+1.54 per cent) when used car prices traditionally soften, the overall annual fall of 1.5 per cent could have been significantly more, said Auto Trader.

However, the Auto Trader Price Index also highlights that the picture is not a uniform one across all regions and age ranges and that there are quite distinct market dynamics at play.

There is clear evidence of recessionary effects on the used car market, says the index. Following a general historical trend of an increasingly younger vehicle parc, the latest figures suggest that the ageing of the car parc that began in 2009 has continued through 2011.

A reduction in the volume of zero – three-old vehicles available for sale, led to an increase in prices of more than six per cent for this age bracket. This contrasted with a six per cent fall in the prices for cars aged over 10 years old.

‘Lack of supply leads to prices of younger vehicles climbing’

Auto Trader says the potential impact of these dynamics on dealers is ‘the triple-whammy effect’ of less natural consumer demand, less quality stock coming into the market and, when it does, higher trade prices that eat into profit margins.

Tim Peake, Auto Trader’s strategy director said: ‘The impact of reduced new and used car transactions, created by relatively weak consumer demand, is leading to an ageing vehicle parc and hence lower overall retail prices for used cars, as evidenced in the latest Auto Trader Price Index.

‘However what’s interesting is that there are clear differences between age segments of vehicles and geographic regions that mean there is more to the headline 1.5 per cent annual fall in prices than meets the eye.

‘Similar to the housing market where quite often the price dynamics suggest that there are two parallel markets, driven by a lack of supply in London and much of the South East, so in the UK car market, lack of supply leads to prices of younger vehicles climbing while the rest of the used car market falls.

2012 OUTLOOK

Peake continued: ‘Looking ahead, the picture for 2012 is one of a challenging market. Although it has started to fall, it is likely that business and consumer confidence will remain subdued. Those dealers who will therefore succeed, will focus on ‘retail minus’ strategies and not ‘trade plus’ pricing.

‘The winners will be those who seek to trade their way out of the current climate, being smart about buying appropriate stock, focussing heavily on stock turn and embracing the online opportunities to position themselves as internet car retailers.

‘Put simply: in the current climate getting the right stock placed before the widest car buying audience and pricing this against a competitive retail market, is key to commercial success.’