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REMARKETING: Experts predict a challenging 12 months ahead

Date: 10 February 2012

Supply shortages and cost pressures look set to dominate the used market in 2012, although online sales continue to strengthen, reports Jack Carfrae

Predicting the future is never easy, especially with a field as changeable as the remarketing arena, but the industry remains keen to speculate about used values and demand for defleeted vehicles during the coming year.

A consistently turbulent economy renders accurate predictions all the more difficult and there's a strong argument to suggest the typical seasonal peaks and troughs in used values - as the market had become accustomed to pre-recession - is becoming further removed from reality.

BCA communications director Tony Gannon says the year has got off to a good start with strong demand and good results in the firm's auction halls, but forthcoming holidays and events are likely to impact on trading later in the year: "Easter is in early April and this has been a watershed for demand in previous years. In addition we have the Diamond Jubilee, which brings another double bank holiday, and significant sporting events in the shape of the London Olympics and the Euro 2012 football tournament. All this activity can - and does - impact on the wholesale market as was demonstrated in April last year, with the close proximity of Easter and the Royal Wedding."

Other than obscure seasonal factors, Gannon claims used vehicle prices could go either way, as a likely shortage of supply will drive values upward, while continued economic pressures could drive down demand, which will in turn quell prices.

"The longer-term prospects suggest the next 12 months are going to be challenging for the industry. The potential supply shortage of used cars may push average prices up, while economic pressures may lead to reduced demand, which will push prices downward."

Alex Wright, managing director of Shoreham Vehicle Auctions, agrees that levels of stock reaching the used car market are likely to dwindle through the year and that there's pressure from retail buyers who are looking to make big savings.

He mentions that volumes in the leasing sector are likely to increase, though: "A lot of vehicles have been extended in their leasing life, so vehicle volume in the leasing sector is likely to increase, albeit age and mileage will be higher than normal. With the recession forcing more and more fleets to hold on to their vehicles for longer, we will see service histories becoming more important on high-mileage and hi-tech diesel vehicles. Buyers will be hunting down the right stock to find them, which means competition for these vehicles will be fierce, subsequently increasing their value."

Wright adds that used prices could be driven up to the point where second-hand buyers are in fact paying more for a nearly new model than they would be for a completely new vehicle: "Used prices will be driven up due to shortage of stock, which on nearly new stock may mean a retail buyer or SME buys a new car. This will also be helped with manufacturers supporting sales with discounts and low finance."

Also on the up for 2012 is online selling. BCA has reported a consistent rise in cars defleeted via online channels at auction to the point where it exceeded 100,000 online sales for 2011 in November - an 11% rise year-on-year. Gannon is expecting a similar trend to follow in 2012 and adds the firm intends to develop its web channels and has a number of product launches in the offing that will make life easier for its online users.

Equally positive is the firm's view on lifestyle changes and the used car market as a whole. Gannon believes, despite broader economic concerns, there will always be buyers for second-hand cars regardless. "There is very little to suggest hard-pressed household budgets are going to improve in the months ahead, which means less money is available to change or upgrade the family car," he says. "However, there will always be activity in the used car market caused by changes in lifestyle - the growing family, a driver passing the driving test, a windfall purchase - and the used car market has proven itself to be resilient and robust over many years."

Simon Wells, business development manager at remarketing firm Autorola, agrees that online sales are likely to become more popular across the board this year: "Companies will be looking to explore alternative avenues, in a bid to be more dynamic, which is why more vendors are experimenting with online sales channels."

He highlights that vehicle condition is likely to play an even larger role in the remarketing arena this year, as firms seek to get the best value for money when defleeting their cars and stressed that maintaining accurate records of fleet vehicles is vital.

He adds: "The AA is already seeing private customers cutting back on servicing their cars in a bid to save money. The danger in this, though, is that it will start to show a year or so down the line, when the cars coming back into the market are in a lot poorer condition as well as having higher mileage. Fleets need to bear this in mind, and consider that a non-maintenance contract may not be the best option, as this may well have a very negative impact on the market a year or so down the line."

Despite their explosion on the new car market, the jury is still out on eco sub-brands and alternative fuel vehicles, which have yet to make a real dent in the used car market, but that may change. They certainly have the potential to, but high prices and fears about long-term reliability still seem to be deterring many a buyer.

Wells comments: "[Alternative fuel vehicles] are still untested in the five-year-old market, but having progressed massively in the past five years, the current models make the early ones look dated. There is, however, a cost fear outside manufacturer warranties for potential used buyers, which will be hard to overcome in a recession."

Wells remains certain that good alternative fuel vehicles will find buyers, but mainly because they're low volume rather than because of the associated running costs and image. He says costs and needs of the user will always come first in this respect.

Gannon also believes traditional vehicles will continue to maintain their strong hold in the marketplace, claiming that, while demand for clean and economical vehicles remains high, those vehicles that will be the most successful are the best-kept ones.

Wright is more optimistic and believes EVs and other alternative fuel vehicles are likely to make inroads this year, even if it will be very geographically biased for EVs. He also points out that 4x4s may not continue to enjoy the bounce-back that they have done over the past couple of years: "4x4 dealers may face some challenges, as snow has not come this year yet."

Gannon summarises: "Much like 2011, vehicles in condition one, two and three [using BCA's grading system] will flourish, while those in condition four and five may struggle if not priced in line with market expectations. Price and value for money are going to be critical factors in the used car market in 2012 and buyers will focus on vehicles that are well presented, nicely specified and in good retail colours."