Used cars arrest the slide
5 May 2009
Philip Lord, Go Auto
A SCARCITY of good trade-ins and fleet auction stock to meet growing demand for popular used cars has reversed the price slide of mainstream used vehicles at both wholesale and retail levels.
Last year’s slump in used car prices – triggered by the global financial crisis and a surge in fuel prices – is but a memory as the shortage of in-demand stock and a 20 per cent increase in buyer numbers in the past six months have lifted the values of some used cars by up to 30 per cent over the lows of 2008.
Anecdotal evidence suggests that fewer new-car sales, as private buyers and fleets hang on to cars longer, is curbing the volume of low-kilometre stocks just as buyers are coming back into the market looking for value.
However, the upper spectrum of used cars – above $150,000 – continues to suffer depressed values and lower demand.
Steve Allen, branch manager of Pickles Auctions, Belmore, said the mainstream market was experiencing a strong and unseasonal recovery.
“The market went through a scare with the financial crisis early last year, he said.
“There was a clean out. Prices dropped at auctions from about February right through. Then the market picked up from about September/October, and has been strong ever since, defying all trends.
Brett De Silva, a wholesale buyer for Peninsula Holden in the Sydney suburb of Bankstown, said that finding good used stock to fill his company’s large yard was much harder recently, and more expensive.
“Used cars have definitely have shot up in price, he said. “There’s a shortage of cars at the moment – we’re struggling to buy cars. Probably the last three months it’s been really bad.
“Just buying anything within reason to sell on is hard to get. For a good retail car, you’re paying anything from $2000 to $3000 more.
Mr De Silva gives the example of a Holden dealer’s bread-and-butter used stock, a four-year-old Commodore Executive sedan, which may have yielded $8000 a year ago but now will sell for about $11,000 in the trade.
Melbourne City Ford used car manager Lester Jackson is a little more cautious about any upswing in used cars. Mr Jackson said typical increase in value was “a couple grand, for sure.
“The market has picked up a fraction; there is more inquiry, he said. “The most popular range is around the $15,000 mark.
Redbook’s David Sprague said a pattern was developing where large vehicles – among the hardest cars to shift last year when fuel prices were high – were coming back from the precipice in the used market.
“Affordable larger cars are back on the agenda for many buyers as fuel prices have settled and the hysteria faded, he said. “Even the performance models like SS and XR8s, that were struggling to find buyers late last year have an audience once again.
Mr Allen said a barometer for the health of the auction business – and the used-car market – was auction attendance, which has gone up since late last year.
“There is certainly an increase in buyers attending auctions, whether they be dealers or private buyers. Our [buyer] registrations have been up, across the board. We’re probably talking 20 to 30 per cent at the moment.
Matthew Muir, dealer principal of Muirs Holden/Kia, in the Sydney inner-western suburb of Ashfield, said he had also seen a clear increase in used-car demand at his dealership.
“In the last four months the demand for used cars has increased. We’ve certainly seen – I wouldn’t say a dramatic rise – but certainly a slight lift in used-car sales in terms of volume. I’d say it’s a 15 to 20 per cent increase.
Mr Muir believes the decline in new-car sales in part explains the situation. “The best source of acquiring used cars has been getting them from the new-car department – trade-ins.
“With new-car volumes down 20 per cent, that’s had a direct impact on the quality and the quantity of used cars that have been available to dealers, and that in itself has driven up prices, if for no other reason.
Car companies that oversee large corporate fleets have also seen increased used car demand.
Mitsubishi corporate communications manager Lenore Fletcher said Mitsubishi was struggling to find enough former fleet cars typically up to one-year old to send to auction.
“It wouldn’t be unusual to have 80 per cent clearance rate at auction, [but] over the last four or so months we’re looking at 100 per cent clearance. We’re actually looking for vehicles to put through.
Many fleet management companies are also find that their customers are holding on to cars beyond their usual change-over period.
In uncertain economic times, many fleet customers are reluctant to commit their business to a new three-year lease and are instead keeping their existing fleets on extended leases.
VFACTS sales figures show that rental companies in particular are not buying as many new cars. In the first quarter of this year, rental fleet purchases are down 67 per cent over the same period last year, meaning a corresponding decline in ex-rental stock reaching the used market.
Dealership fleet sales managers agree that fleet business has slowed. Daniel Han, fleet sales manager at Peninsula Holden in Sydney’s south-west, said that up to 60 per cent of his 30-odd fleet customers – typically who buy up to 15 cars at a time – are extending their leases “to see what the market’s doing? instead of replacing their cars at their usual change-over time.
Matthew Muir said his dealership had seen fewer fleet customers returning cars.
“We certainly have been impacted by [fleet customers]. Those customers who were coming to the end of their leases, they’ve asked their fleet leasing companies to extend their leases. So those cars that would’ve traditionally come on to the used car market haven’t hit the market, and that’s had an impact on prices.
Steve Allen said the same was happening to former fleet vehicles normally destined for the auctions.
“From what I hear among the lease companies, in these tougher times their clients are looking to extend leases. To avoid a [lease] payout during tougher times, now they’re extending leases – and that affects some of the supply at auctions.
While industry valuers suggest that used cars values may have plateaued or even improved in the short-term, they don’t expect it to last.
Nick Adamidis, marketing and sales manager of another key automotive industry valuer, Glass’ Guide: “Going forward it will be business as usual.
“There is still a long-term downward trend in the industry, that’s for sure. I suppose in the second half of the year, as unemployment rises, you’ll see a bit more of that continue. [Used cars have] had a bit of a halcyon period in the last three to four months. It’ll go back to normal rates from now until August.
Pickles Auctions’ Steve Allen said he may not know what the future holds for used car values but he knows what is happening in auction room now – demand is still high.
“Typically, as a rule, by Easter time you see the market drop off a bit. We haven’t seen that – the market has been consistently strong – which is unusual. So the market is definitely not following usual trends.
While the Australian valuation experts don’t see an overall rise in values, that has already happened in the UK market, according to industry valuer HPI.
Year to date, the annual depreciation rate decreased from 34.9 per cent to 30.4 per cent on all 36-month-old cars in the UK, and from 29.6 per cent to 24.1 per cent for all 12-month-old cars.
Back in Australia, the sector of the used car industry not enjoying the renewed interest is cars selling beyond $150,000.
Pickles Auctions’ Mr Allen said: “Where things are levelling out is over a $150,000 -the demand is not what it was. Before the financial crisis, that market was very strong.
“There are still a lot of people with $100k to spend, believe it or not, that a year a go might’ve been spend $200,000 new. But they are now are looking to spending $100,000 now and save.
Redbook’s David Sprague says that his company’s data also shows that the top end of the used market is not doing so well.
“Big dollar prestige seems to be suffering. Dealer asking prices on cars over $150,000 can sometimes vary as much as $40,000. This may be reflective of owners desperate to get out of massive repayments. Therefore the dealers that are acquiring these cars are marketing them at a much lower price than one purchased over six months ago.