9:54 am, January 28, 2016
HAPPY New Year! 2015 was an interesting one for the independent car dealer – a shaky return to economic strength, but one that was hit massively by a fall in residual values at the lower end of the market, where you simply can’t give scrap cars away.
At my end of the market, where the majority of cars I sell go for between £2,000 and £4,000, that’s a bigger thing than it sounds, as the vast majority of part-exers I take in are old, tired and shifted quickly via a ‘PX to clear’ ad.
Previously, anything priced at the three pillars, as I call them (£495, £795 and £995) would usually find themselves new owners without too much effort. And it was at the cheaper end of that spectrum where I encountered most of the idiots – someone buying a Peugeot 106 for a beer or two under a grand is looking for a cheap car for a reason, such as a son or daughter learning to drive, something to trundle to the station and back in, or a handy-to-have second car that they don’t want to stake the family silver on.
Someone buying a £495 rusty Ford Focus, on the other hand, is probably looking for daily transport, often in the form of something they can splash the proceeds of next week’s benefits cheque on in tat from the nearest car spares shop, instead of the tyres it probably needs.
But I digress. Previously, a punter could always pick up a trusty banger for not a huge amount of money, knowing that if it failed the MoT spectacularly, lunched its gearbox or was bounced off a lamppost by a youthful relative, they’d at least get a couple of hundred quid back so it could be melted down and used to weld up the Forth Road Bridge.
But now, that reassurance has gone. A dead car is a liability, and just recently, round my way, you’ve had to start paying the scrappies to tow them away. And that, dear reader, has had a very profound effect on my business.
Let me outline it. What happens is this – someone comes on my lot looking to replace their tired old car with a less tired and slightly newer one. In the process, I accept that the reason they want rid of their old banger is because they’re fed up with it. Occasionally, they’ve just saved up and fancy a change, but often they’re at a point where the ‘new’ car is a desperation purchase, funded by a bank loan because the previous car is starting to go wrong.
Today, cheap PX-ers are suddenly utterly worthless
Working within the motor trade, I accept this. I usually allow between £300 and £600 for a cheap PX-er, knowing that, in doing so, I have a little bit of mates’ rates wiggle room to find and rectify any faults that may make a car unusable. I don’t, however, invest much in such cars, as you’re never going to retire on the proceeds of selling one. I generally do enough to make sure the car is safe and I won’t get sued or be in breach of the Sale of Goods Act, then sell it warts ’n’ all with no warranty implied or given. By the end of it, I’m usually in for a couple of hundred quid less than I get back, sometimes the margin is smaller, sometimes it’s zero.
But it’s a core part of my business because it sells more expensive cars – by allowing a PX it makes it convenient for my customers to drive in and drive out, key-for-key. It also allows me to sell them up into something with a bigger margin attached, knowing that all I need to earn back is stand-in-value plus any essential repairs.
Yet today, cheap PX-ers are suddenly utterly worthless, and the customers don’t understand. I tell them it’s because of the price of scrap, at which point they’re offended at the fact I could even consider putting ‘Cybil the Citroen’ into the crusher. I suggest they’d be better off selling their old car privately, but they can’t be bothered (nor can they understand why I won’t be delighted to do so myself, as after all, if they can get £795 for it, why can’t I?).
Yet I could have a more valuable car sitting on the lot, rather than increasing the size of ‘Pooh Corner’, where all my incoming PXs go to rest awhile.
Real estate and equity are important. I have 32 spaces on my lot, and at an average of about three grand a spot, there’s usually the lion’s share of £100k’s worth of business sitting there waiting for me to convert. Fill those spaces with dross, and I can’t afford to pay the mortgage.
So what’s now happening is this. I’m either over-allowing for the value of a PX so as not to lose a sale, or I’m discounting downwards from my window stickers in order to ensure I keep moving the metal. Either way, my margins are squeezed further. So while the new car industry is going great guns, returning to pre-recession levels of pre-registrations, fleet deals and genuine sales, a strong economy isn’t the greatest news to those of us at the grittier end of the industry, who suddenly find ourselves having to work harder than ever before…
Who is Big Mike? Well, that would be telling. What we do know is he’s had more than 40 years in the car trade and picked up some incredible tales along the way.
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