REMARKETING: Falling consumer confidence impacts demand for used cars
06 June 2011
A downbeat economic outlook means potential second-hand buyers are reducing their spending, resulting in a slowing of used car retail activity, reports Rachel Burgess
Demand across model sectors is fairly evenly spread, according to BCA director Tony Gannon. However, a lack of consumer confidence in the retail sector means more pressure in the weeks ahead for the remarketing sector.
"The fact is the overall economic picture remains gloomy and consumer confidence is fairly low," says Gannon. "High fuel prices are contributing to the rising inflation, as well as the knock-on affect of the VAT increase earlier in the year and the latest tax changes - it all means motorists are likely to be looking to reduce their costs going forward, and used car retail activity is relatively slow."
Gannon continues: "This all impacts on demand in the used car arena. While conversions in the fleet and lease sector were around the 85-90% level in January, the figures are now closer to 70-75% on average. With greater volumes coming into the market and demand staying relatively flat, we are seeing more re-entries and greater numbers of un-sold vehicles.
"All these factors combined mean that professional buyer confidence is relatively fragile and with the summer months ahead - typically quieter if previous years are to be believed - we anticipate more pressure on conversions and values in the weeks ahead."
Tim Bowden, head of operations at leasing firm Hitachi Capital Vehicle Solutions, agrees that trading is expected to be harder at this time of year, but has also been impacted by several other factors. He says: "The weather has been unseasonably good over the last few weeks. People have been distracted by the thought of BBQs and sunbathing, not wanting to trawl around and look at used cars."
He adds: "There has also been a general tightening of belts, as Government austerity measures hit home for many households. The media continues to portray the negative side of the economy, which can only influence the behaviour of buyers to be more cautious."
Niche and volume
In terms of specific sectors, there has unsurprisingly been the seasonal drop-off in 4x4 values, which had flourished due to the very harsh winter weather at the end of 2010 but have stuttered in recent weeks.
Gannon advises: "Specification for 4x4s is very important and alloys, leather, aircon and satnav are favoured in the used market. And make sure the spare wheel is in place, particularly if it is exterior-mounted on the rear-hatch. The car has to look the part and condition is very important, so pre-sale preparation is vital."
Meanwhile, niche sectors including convertibles and roadsters have been in demand, again due to seasonality. In fact, the hot weather experienced during April has helped soft-top values recover quite sharply, with a 5% month-on-month value increase.
Volume sellers stay strong: "Interest in the volume sectors is very much reliant on value for money and a good specification," says Gannon. "Even in the most difficult economic circumstances, an ex-fleet or lease car in a good colour with a high level of trim and extras will be very desirable."
He continues: "The supermini sector remains very popular with buyers, particularly with spiralling motoring costs from fuel to insurance. Bold and bright colours work well as do metallics and all help to give character to the cars.
"There is less of an incentive for diesel power in this sector as the smaller petrol engines are already very economical to run. With so much good product around from the manufacturers, it is hard to go wrong, but aircon is a must and - as a rule of thumb - increasingly a higher specification is expected by buyers. High mileage has a disproportionate downward effect on value."
Hitachi's Bowden concurs that the most demand is for smaller cars with competitive pricing. "Many of these are now well specified, which means that buyers may seriously consider downsizing. Also, traders buying stock do not want to be holding expensive stock if the retail market remains subdued.
"The price of fuel is one of the key influencers in a used car purchase decision. Generally, smaller cars are seen as more economical, and the lower vehicle purchase price is an attraction in the current economic climate."
Gannon adds that the lower medium sector has been one of the most consistent auction performers in recent years, right across the board. "Motorists like the economic running costs associated with a smaller vehicle and the fact they have a car that is equally at home doing the weekly shop, the daily school run or longer haul motorway driving."
He continues: "This sector is fiercely competitive and can be surprisingly badge-sensitive. Because there is plenty of choice of good quality product in the marketplace, buyers are always looking for the best spec and colour combinations. Buyers don't like high mileage or damage, the latter being particularly off-putting."
Another dominant area for fleets, the upper medium sector, is "not desperately fashionable" says Gannon. "The trick for the fleet operator at selling time is to differentiate their product in a crowded marketplace and this means a high specification and a good colour as these cars are often sold on the extras. Buyers equate high mileage with hard-worked, and anything over 100,000 can start to be turn-off." And of course, diesel is much preferable to petrol.
Predictably, Bowden expects environmentally friendly vehicles, with both low emissions and low fuel consumption, to continue to fare well in the future.
He concludes: "However the old adage of specification still remains and Hitachi discourages the supply of base-specification vehicles (especially combined with solid paint).
"We encourage the supply of vehicles with appropriate specification, and with optional fittings that make the vehicle more attractive by comparison to others of its type."