Pressure on used car values set to increase

Pressure on used car trade values is set to mount in the next few weeks, according to CAP Automotive.

A bumper new car month in March spells significant imminent increases in supply as hundreds of thousands of part-exchange cars return to the market – just as the Easter holidays herald a typical seasonal slowdown in demand.

That’s the view of CAP Automotive’s Black Book Live, a real-time used car values trending tool.

Higher volumes of vehicles in the marketplace this year, compared with the same period in 2014, means values have already been tracking slightly lower than a year ago. But pressure on trade values is expected to increase imminently as more March new car orders are delivered, sparking a further influx of trade-in cars.

CAP experts researching the market daily have reported a slowdown in buying activity from many of the large used car retailers who are already fully stocked or exercising caution ahead of a ‘normal’ Easter break reduction in retail demand.

Many dealers are also complaining that the scarcity of high quality stock has been driving values for the cars most in demand to “unsustainable” levels.

Underpinning this dynamic is on-going robust retail demand, which has forced dealers to chase values for the best cars up or risk incurring high preparation costs by choosing lower quality stock.

With the market performing in line with CAP’s published forecasts throughout the year, Black Book Live senior editor Derren Martin (pictured) stresses that there are no grounds to fear a used car values ‘meltdown’.

He said: “The market has enjoyed such a stable time over the past few years that any departure from that will be particularly apparent now that more typical seasonal patterns are being re-established.

“Dealers are also particularly vociferous in their complaints about the relatively high values of the best quality, low-mileage, cars at present because margins are under sustained pressure.

“The difficulty for dealers is that they are caught between a rock and a hard place when sourcing stock at a time like this.

“They believe the market will slow down shortly, so they don’t want to be caught out with cars they paid a premium for once demand has reduced.  Paying more than they’d wish for cars is always painful because it’s never easy to recoup those extra costs with a higher retail price.

“But, at the same time, lower quality cars, for which there is less demand in the trade, cost time and money to prepare for retail presentation – and that eats into their margins too. 

“However, we believe some value depreciation is just around the corner and would advise that daily tracking of values with Black Book Live will pay dividends from here on so that nobody is left exposed to over-valued stock when the downward turn does begin.”