Auction 'gridlock' warning
22 December 2008
Author: Rupert Saunders
The UK's car auction business could face "gridlock" if economic confidence in the auto retail industry continues to slump in 2009, according to John Bailey, chief executive of auction giant Manheim.
In the face of falling new and used car demand, Bailey warned the industry would be unable to cope with the number of cars held in stock. He said business car operators, including major finance and leasing companies, need to understand how to value cars correctly and "take the sales that are there".
Bailey believes the industry here must heed the lessons from America, where his parent company is the market leader.
"The USA is currently in a worse position than the UK, but it's coming our way," he warned. "There used to be a six-month time lag before trends crossed the Atlantic; now that is down to two to three months.
"We have 29% more cars on our properties in the USA than a year ago and unsold vehicles are starting to back up. If that happened here in the UK, we would be gridlocked."
The so-called 'stock blockage' in the USA has been caused by the virtual collapse of the credit markets. There has been "an exponential rise" in dealer bad debt and many customers who want to buys cars are simply unable to raise credit.
Bailey said wholesale inventory at auction from captive finance companies was up by 59%, while commercial fleet inventory was up 29% and manufacturer stock up 28%. The only sector in the US that is reducing its auction stock is rental operators, down 13%.
Manheim is to take a pro-active stance in encouraging business car operators to be realistic about disposal values, including launching new SuperSeller auctions which have been trialled in the US.
"There is no doubt that things will be tough," warned Bailey. "Because of forces outside our control there will be more cars than we are used to. And there will be more cars than buyers. The rules have changed and the industry needs to work to the new rules."