New-car market downturn will have adverse effect on used stock

The protracted downturn in new-car sales over recent years will have a significant effect on the used market in 2010 and beyond, warns Glass’s Guide.  The main cause for concern among dealers will be a major reduction in the supply of one- and two-year-old used cars.

“It was a situation that was prevalent following the recession of the early 1990s and it will be repeated over the next few years,” comments Adrian Rushmore, Managing Editor of the Guide.  “When new car sales remain depressed for a succession of years the issue becomes more acute, because future used car supply reduces still further.”

Dealers will certainly experience more difficulty in sourcing one- and two-year-old cars this year compared to last, as a result of the marked fall in registrations in 2009 and 2008.  “The saving grace for dealers is that the supply of three- to five-year-old cars will be fairly constant this year, thanks to new sales of 2.4m in 2007, 2.3m in 2006, and 2.4m in 2005.” adds Rushmore.

Used cars up to five years old are the lifeblood of the dealer trade.  Dealers currently account for around 87 per cent of sales of up-to-two-year-old cars, and 77 per cent of three- to five-year-old cars.

Rushmore believes the current Scrappage Scheme could compound the stock shortage problem still further.  “Around 300,000 new car sales in 2009 came through Scrappage, but we anticipate that many of those that have traded in a 10-year-old car are not likely to follow the typical three- to four-year replacement cycle.  That means the availability of part-exchanged cars from 2012 will reduce still further.”

Rushmore concludes: “The recovery in new sales is widely predicted to be slow, with forecasters predicting that the market will only edge back to two million units by 2012.  A constrained new market in the medium term will continue to keep future used-car supply in check, to the benefit and slight improvement of long-term residual values.”