Higher used car prices

Oct 23 2009 Maurice Glover

Higher used car prices

SECOND-HAND car prices will continue to rise as motor traders face several more months of stock shortage.

It could be another 12 months before dealers stop competing with each other to fill empty forecourt spaces, claims vehicle information provider HPI.

'Dealers are going to continue to struggle until true market confidence returns because fresh used stock remains elusive,' says valuation expert Martin Keighley.

The need for more stock to support the retail sector is vital to kick-start the industry, but he claims the manufacturers, rental companies and fleet operators who have control over used car stocks are no longer managing the process in the usual way.

'Knee-jerk reactions at the beginning of the recession have not been reversed as the economy has started to recover," added Mr Keighley.

"Manufacturers reduced their used vehicle stocks to the bare minimum, using the scrappage scheme and a variety of special offers. In addition, they turned off the taps, cutting production of new vehicles while also reducing support for the daily rental industry in both numbers of vehicles and depreciation risks.

'The steps taken by manufacturers mean daily rental companies no longer have the regular volumes that would normally make their way into the used market. In the current economic climate rental organisations struggle to get finance to take on the extra risk of outright purchase of new vehicles.

'With rental companies holding onto vehicles for longer, what was once a major supply of used car stock is now just a trickle. Added to this leasing companies are relying on extending contracts to ride out the residual value falls and avoid large back end losses, so fewer 'end of contract' vehicles are coming to market and those that do are above average in terms of age and mileage,' he says.

'Used market suppliers appear to be lacking the confidence to step up production and start taking risks again, even though used values are back to something approaching sensible levels. Even if the tap were to be turned back on tomorrow, it would still take months before used stock reached levels to match demand.'