September and early October usually bring a surge of older part-exchange vehicles to auction. This allows trade buyers the opportunity to stock often at advantageous prices. However, this year, the dynamic has shifted with stock not arriving in volume as early as expected.
Stock dealers retail for up to £4,995 remains highly sought-after. Throughout September and early October, this stock remains in short supply. Some manufacturers have faced production delays forced by WLTP testing. This has affected delivery times of some new vehicles to customers and in turn reduced the volume of part-exchange vehicles available in auction channels.Supply has been unable to keep up with demand. Action prices achieved for the best cars have increased throughout September leaving buyers struggling to acquire the correct level of stock at the right price. Buyers prepared to pay current hammer prices are consequently witnessing the erosion of profit margins.
The part-exchange auction market is a very popular source of stock for many dealers specialising in vehicles up to £4,995. The vehicles represent the “bread and butter” of the used car market and can yield high percentage profits. The issues for traders trying to service this sector are, supply of vehicles in good condition and the level of competition from other traders trying to buy them. Any additional deficit in supply causes pressures on these businesses.
The graph above shows the volumes of used vehicles over 6.5 years of age sold at auction since 2010. It is clear the number of older cars coming to the market climbed from 2010, following the government scrappage scheme with the volume peaking in 2015. Since then the numbers have declined, from a high of nearly 700,000 in 2015 to a forecast of 600,000 by the end of 2018. The most likely explanations for this decline are a growing export market, declining sales of new privately registered cars producing a part-exchange vehicle and more recently tougher new legislation for MOT testing.
Glass’s editors forecast an increase in the number of part exchanges reaching the auction market in October. This will be good news for buyers. However, the expectation is that hammer will remain strong into November with dealer margins remaining under pressure.