Finding and acquiring used stock in the right condition poses a challenge for UK dealers

Posted by Meg Bernazzani on April 11, 2019

It’s absolutely no secret that retailers have turned their attention to the used car market over and above the new car market. After five years of growth and a record-breaking 2016, new car registrations turned on their heels and fell by 5.7% and 6.8% in the successive two years, which steered retailers toward what continues to be an exceptionally strong second-hand vehicle market.

The trouble is that used cars have been hot property for a long time; prices are extremely strong, the trade can’t get enough of them, and even in the wake of previously strong new car sales, competition is so fierce for quality second-hand stock that it’s proving ever trickier to procure. That’s great news for auction companies, less so for trade buyers and, in short, it’s the perfect storm of supply and demand.

Dealers: finding stock is tougher

In CarGurus’ One Voice Report, we quizzed dealers about the key issues affecting the used car market. Top of the list was finding and acquiring vehicles in the right condition and at the right price, which 80.8% of dealers said was more difficult in 2018 than in previous years. Almost half of those respondents said the process had become very or extremely difficult.

Dealers are not optimistic about the future availability of used car stock, as the majority were either unsure about how the situation would develop in 2019 or expected more of the same. Some were even less hopeful, as a third of those who said sourcing the right stock was ‘a bit, very or extremely’ difficult in 2018 predicted that the problem would get worse this year.

Why is it so hard?

As well as the overriding supply and demand issues over the correct mix of cars, there are a number of other factors at play. Dealers told us that uncertainty over Brexit has impacted buyers’ willingness to spend—people are simply hesitating when it comes to a big financial commitment such as changing their car, which has contributed to the slowdown in stock turn.

Dealers are also worried about the potential for a rise in interest rates, which could increase the cost of stocking loan rates and eat into already stretched margins. Finally, the competition from dealers far and wide is now so intense that it, too, has made obtaining stock more difficult.

What are dealers saying?

As part of our research, we asked dealers for their thoughts on the impact of the stock situation. Here’s what they told us: Kim Chodha, owner of Berkshire-based Sascron Car Supermarket, said: “You have a lot of dealer groups that are expanding. You have more people who want more cars. There are only so many cars to go around, so, therefore, cars are getting more expensive. Dealer margins are getting lower.”

Imperial Car Supermarkets operations director Neil Smith added: “What we have seen is more used cars are being retained now in the manufacturer networks, so supply for us is reducing. Leasing companies have had to extend their terms primarily down to the impact of Worldwide Harmonised Light Vehicle Test Procedure (WLTP) and the lack of new cars available from certain manufacturers.

“As a result, there is less supply in the market for two to three-year-old lease cars, which is what we are looking for. That does push the cost up, especially in January, which inevitably means margins are under further pressure.”

What can you do to improve matters?

The trade has faced its share of ups and downs over the years and dealers are hardy folk. A number of them told us they have tried new initiatives to get around the stock problem, which included increasing the use of part exchanges and buying vehicles directly from private customers. Some of them simply said they were working harder, while others said they were constantly trying new things, which goes to show just how adaptable motor retailers really are.

Topics: CarGurus data, industry news, trends