Dealers across the UK are shocked by the current strength of used car prices – and they don’t predict them to drop an inch in the coming months.
Speaking to Car Dealer, a range of dealers big and small, from franchised to car supermarkets, all expressed amazement at the current state of the used car market.
As Car Dealer recently revealed, used car prices are at unprecedented levels with values rising by thousands in the space of just a month.
Dealers are also being told to push up retail prices as stock shortages are on the rise, particularly with new cars and vans.
One boss of a major UK dealer group has told Car Dealer he expects prices to remain high into ‘early 2022′ and said his firm is changing tack to beat online used car dealers’ high valuations for customers’ used cars.
‘The surge in used car and van sales has, I think, taken the industry by surprise, and this has created a general shortage of stock and therefore a significant rise in prices,’ said Stuart Foulds, chairman and chief executive of the world’s largest Ford dealer, TrustFord.
‘Added to this the semi-conductor issue affecting new cars (and vans) means new car and CV supply is extremely tight and this will continue through Q3 and maybe Q4 too – our new order bank is at an all-time high.
‘This being the case, I think used prices will continue to rise and in these unprecedented times my view is that this will be the case for the balance of the year and into early 2022.’
Foulds said TrustFord is reviewing its used car prices on ‘a daily basis’ and adjusting them, and has seen price movements of upwards of 10 per cent.
The TrustFord boss also said his team are reviewing pricing on new vehicles ‘day by day as supply becomes tighter’.
Rocky road for online disruptors
Foulds added he predicts online used car retailers such as Cazoo and Cinch will soon be affected by the used car market in the same way traditional dealers are.
‘The “disrupters” in the market will start to struggle to source stock as dealers themselves hold onto stock rather than trade or send to auction,’ he said.
‘And the same applies to the big used car supermarkets too – these guys don’t sell new cars or vans and so the opportunity to take a part exchange at the first stage simply isn’t there.
‘Added to that the international travel restrictions means the rental companies aren’t replacing their fleets to the same levels as pre-pandemic, and so ex-rental cars and vans are in short supply too.
‘As an example, our own Hertz rental fleet on the Channel Islands is a fraction of what is was because there is no tourism and therefore no demand.’
Foulds revealed TrustFord is implementing new offers to win customers’ business and undercut the big online players.
‘We have launched a new marketing initiative across the group guaranteeing to beat a WeBuyAnyCar.Com price by at least £100 on any Ford we buy, whether in part exchange or as a straight purchase, and this is communicated both online, digitally and in all of our dealerships,’ he said.
‘The good news for TrustFord customers is that when buying a brand new car or CV and trading in their current car, they are seeing large monthly payment reductions as they are getting significantly more for their part-exchange than previously.’
Potential for poor outcome for customers
Dealer group Swansway also believes used car prices are going to continue for the rest of the year due to new car shortages.
Director Peter Smyth told Car Dealer: ‘We’re uncertain how long the price uplift in the used car market will last, but because of the prospect of a shortage of new cars later in the year, it could last until the end of 2021.
‘Like everyone in the industry, we have struggled recently to source good quality used cars. In response to this, we instructed all our teams to get back to basics and mine the prospecting database.
‘The majority of our customers purchase their vehicles with a PCP agreement. Previously a customer may have found themselves to be in negative equity until much closer to the end of their agreement. Currently, due to the surprise rise in used car prices, this is not the case for a great many of our customers – which is a nice position for them to find themselves in.
‘Therefore we are sourcing a great deal of quality stock from our existing customers, in part-exchange arrangements.’
Smyth added: ‘We don’t know how long this will last, because once the OEMs understand how the current prices relate to one another, combined with a possible shortage of new cars later in the year, there may be a rise in the price of new cars – which would be a poor outcome for customers.’
Dealers are getting carried away
The current used car bubble ‘will burst’ but dealers might get stung, believes Umesh Samani, owner of Specialist Cars in Stoke.
Samani, who’s also chairman of the Independent Motor Dealers Association, said: ‘It’s just sheer madness of how the values have increased recently. As an example a BMW X3 valuation on May 21 went up by £2,450!
‘I believe the trade is getting carried away in a frenzy bidding war to get stock, we’re all short of “quality stock” to retail, but I don’t believe the retail customers are prepared to pay over the odds to get these cars, only meaning many dealers are working on smaller margins.
‘The bubble has to burst, it’s just when? And many could potentially get caught out with expensive stock!’
New cars to be sold with guaranteed part-exchanges
Robin Luscombe, owner of Luscombe’s Suzuki believes the current stock shortage could have a bigger impact on the motor trade than further lockdowns.
He said: ‘The next six months are all focused on the availability of stock, which I fear could have a bigger effect on profitability than lockdowns.
‘New cars supply is restricted. New cars are also more expensive due to additional technology that customers don’t see or need (but legislation demands), so the flow of part-exchanges, end of the contract cars matched with pent-up demand, has forced prices up at an incredible rate.
‘I don’t see this being a short term increase, as there is nothing to suggest the stock will become more plentiful, and if demand outweighs supply prices go up.
‘I don’t think the prices can or will continue to increase at the same rate, but they won’t go down, and as new stock, semi-conductors continue to cause manufacturing problems, the shortage of used cars will continue.’
Luscombe is positive for the months ahead, however, saying: ‘Aftersales will be busy especially in August and September with delayed MOTs and service work, and we will find new ways to buy cars.
‘Whatever new cars you can get will need to be sold to customers with a part-exchange. I can almost see the situation, whereby we only want to sell certain new cars if we are taking a part-exchange back, but that also presents problems.
‘It’s going to be an eventful six to nine months, but we are car dealers, and we will deal our way through the situation.’
Holding your nerve
Meanwhile, Steve Corwood, owner of Motor Connect is taking the view of not panicking amid rising prices.
‘It’s been about holding our nerve, buying the right stock in-line with a quick stock turn and keeping metal moving,’ he said.
‘The key fundamental we set is not to get carried away and buy out of comfort zones. Easier said than done in today’s market as we can’t sell fresh air and the FOMO (fear of missing out) effect.
‘However, the long game needs to remain clear and we can leave ourself exposed to a very bullish buying market.’
SW Car Supermarket told Car Dealer it is adapting to the market and changing the way it acquires stock.
CEO Anton Khan said: ‘It would be beneficial for all dealers to act accordingly to market conditions and price vehicles in line with the demand, as we all need to make larger margins.
‘We foresee the market remaining strong for at least the next three months and it will be interesting to learn how margins are reflected on Auto Trader in the coming months.
‘Everybody is struggling for stock as we’re all fighting for the same profile of vehicles, hence why we are adapting to Innovative avenues in acquiring stock. We’re enjoying this period of growth after what has been a challenging year.’