Thursday, October 22, 2009
The great stock shortage
HPI Valuations offers an insight into the state of the used car market
Despite depreciation slowing down and values stabilising, the shortage of stock is holding the used car market back from a full recovery, says vehicle information provider HPI. Whilst many the market is showing signs of bouncing back, the need for more stock to support the retail sector is vital to kick-start the industry.
"The great stock shortage is at the forefront of everyone's mind, with many wondering when it will end," explains Martin Keighley, HPI's valuation expert. "The operators who have control over used car stocks, namely manufacturers, rental companies and fleets, 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."
"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, reducing production of new vehicles, while reducing support for the daily rental industry in both numbers of vehicles and depreciation risks.
"The steps taken by manufacturers had a knock-on effect. 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. This means fewer 'end of contract' vehicles coming to market and those that do appear are above average in terms of age and mileage.
"Today, dealers are taking fewer part exchanges, while relying on the scrappage scheme to generate business, but at the end of the day they cannot find the right stock to sell, putting businesses in danger. Some, including franchise operators will struggle to survive. Many are retaining older and higher mileage vehicles that they would once have passed down the line.
"The 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 was turned back on tomorrow, it would still take months before used stock reached levels to match demand.
Keighley concludes "The stock shortage looks like it's going to be with us for some time. Meanwhile, used values will continue to rise, leaving dealers competing with each other in an effort to fill the empty spaces on their forecourts. Until true market confidence returns, which could be the middle of next year at the earliest, dealers are going to continue to struggle, as fresh used stock remains elusive."
DATED: 22.10.09
FEED: AW
