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ON THE MONEY: Used not new - that's the area of greatest concern

Date: 23 September 2008

Rupert Saunders

Forget the headlines about falling new car sales - business car managers everywhere should be more worried about the drop in used car values

Falling new car sales hit the front page of The Times last week. They are "the most dramatic sign yet that the country is heading into a recession" thundered the paper.

The publication of the August new car registrations - down 19% to the lowest level for 40 years - coincided with the release of this year's BCA Used Car Market Report. This takes a more long-term strategic view of the market with the underlying message being: you need a healthy used car market to stimulate and sustain the new car market.

Auto retailers I talk to are far more concerned at present about the state of the used car market than they are about falling new car sales, despite the dramatic headlines. Since the move to a twice-yearly plate change, August has always been a pretty insignificant month for registrations and most activity is focused on achieving forward orders for September.

So, for new car sales, these next couple of weeks will be critical; the final chance to hit year-end targets and achieve volume bonuses. The industry is expecting a double-digit drop in new car sales across the final quarter, but that will leave the year-end total still over 2.25 million units - a pretty respectable market by any standards, especially for those of us who remember the last recession when it dropped below the two million mark.

No, the issue for retailers is the 5% monthly drop in used car values - and this is what should be concerning the business car market too. With the 'book value' of used cars dropping so rapidly, it is becoming increasing difficult to value part-exchanges and to manage the healthy used car market that we all depend on.

In these circumstances, it is important not to panic. Certainly if you have cars to dispose of, you will need to be realistic about the values you are likely to achieve (especially in the 4x4 and gas-guzzling saloon sectors). But it is also important not to slavishly 'follow the book down'.

A BCA spokesman admits prices are under pressure but says volumes are relatively healthy and the auction house will still sell 10,000 cars a week.

"There is a sense that the guides were slow to catch on to the market fall and have been making big adjustments to catch up," he argues. "We have not seen 5% drops in auction values in any one month."

Mike Pilkington, Manheim managing director, adds: "The tougher market for wholesale used cars looks set to continue for some time. However, interest in 'budget' vehicles at auction remains high, confirming there continues to be demand if the price is right."

Unless there is a dramatic change in the economic climate, market stability is not likely to return until the new year, at least. And, even then, values will not return to previous levels. So business car managers, and auto retailers, need to make the mental and fiscal adjustments now - or face greater pain in the future.