A close look at the results from some of the UK's largest dealer groups reveals just how vital a fillip the secondhand market is for the bottom line. While competitive market conditions saw Inchcape's like-for-like new vehicle sales 1 per cent down on 2005, used car sales were up 2.5 per cent. At Pendragon, the UK's largest dealer group, its integration of the Reg Vardy network significantly improved its exposure to the used car market – a major growth area for Trevor Finn's group. Margins on volume used cars under its Evans Halshaw brand rose to16.6 per cent – up from 13.9 in 2005. The importance of that figure becomes more apparent when compared with the tighter 7.2 per cent achieved on new cars. The group also saw the contribution its used cars made to gross profit within the Evans Halshaw brand increase 6 per cent. Demand for luxury cars While not as strong as its volume brands, Pendragon's trade in luxury used cars remained brisk. More stable than spectacular, the group said there was no noticeable weakening of prices with margins up to 7.3 per cent. While this was still below the 10.1 per cent gross margins achieved on new luxury cars, that figure itself was down from 10.2 per cent the previous year. With Stratstone, the percentage of gross profit from new luxury cars declined 3 per cent, while gross profit from used vehicles grew 2 per cent to 20 per cent. No surprise then that rival group Lookers' strategy also sees it avoiding being over-reliant on the new car market. Secondhand market While it also bucked the overall new car downturn, used car retail sales were up 6 per cent. Just like Pendragon, Lookers saw gross profit accrued from used sales climb 2 per cent from 2005, while new cars profits continued to drift. Despite evidence from the larger groups of a growing dependence on used car sales, the latest data from the remarketing sector shows that despite the hardening economic conditions, the used car market is still continuing to average strong values. Auction results Figures from Manheim's first monthly market bulletin showed the average sale price of dealer used stock last month was £2,214 – down slightly against £2,278 in February last year. There was minimal change in mileage with February's average of 73,348 slightly higher than last year's 71,914 for the same month. The difference in average age is also marginal with average age last month at 91 months and February 2006 at 88 months. The used market remains very stable, according to Manheim dealer sales director Alan Cureton. “It may even be moving slightly downwards based on the average age and mileage of cars last month being slightly older and with higher mileage,” he said. The average auction prices for petrol models in February 2007 was £1,963 compared with £2,054 in February last year. This equates to 15 per cent of new price – identical to figures for February 2006. However, at 92 months and 70,535 miles, last month's petrol stock is older and has covered more miles compared with stock from the same period last year. Cost of reconditioning BCA also reported a slight dip in demand but reaffirmed that key issues in the sector remained reconditioning and holdings costs. “Franchised and non-franchised retailers the length and breadth of the country are telling us that retail demand is respectable, but not as strong as expected or as strong as the same period last year,” said BCA sales director Mark Hankey. Continued on page 36 Continued from page 34 Hankey added: “This means that good quality stock is more likely to sell first time for higher prices, while poor quality stock will be picked over and bid what it worth or left alone.” Simply put, this means there is plenty of business to be done right now but, according to BCA, only if the sellers can get the right cars in front of buyers. Hankey points to a polarisation of the market where those investing in pre-sale preparation are enjoying better prices and a quicker churn from car to cash. In contrast, sellers offering non-reconditioned vehicles are experiencing longer selling times, greater holding costs and a low eventual selling price. Interest rate hikes Overall, Glass's has also reported a muted start to the used car year, with the market falling short of expectations. Adrian Rushmore, managing editor at EurotaxGlass's, pointed to unexpected interest rate rises as a strong dampening factor. “The impact is not merely measured by the decrease in consumers disposable income, but also in the effect of the associated media coverage on buying behaviour,” he said. Manheim, however, has also reported a 15 per cent increase in volumes of used vehicles coming to auction. “This could be because as more dealers have spent more time and effort on their used car operation and are trading more used vehicles, the older cars are being put through auction,” said Cureton. Data from independent market analysts Trend Tracker predicts a bright future for the used car market. Its research forecasts that used car demand will grow by 8 per cent between 2006 and 2011 from 7.73 million to 8.33 million units. As the new car market continues to contract – analysts expect this to continue into 2008 – the secondhand sector is set to continue providing a boost to dealers who know they can no longer bank on new car sales. Car buyers looking for value for money So which used models are the ones most likely to drive out the showrooms faster? Unsurprisingly, value for money is still the key driver especially for superminis, small hatchbacks and mini-MPVs and that factor is also driving demand for diesel product as well, according to BCA. “The large executive car is rapidly turning into the Cinderella of the used car market – not prestigious enough for the money-no-object buyer and simply too big and uneconomical for the average family car,” said BCA sales director Mark Hankey. At the top end of the market, interest in performance and luxury cars remains limited simply because these vehicles still involve six-figure investments. Nevertheless, BCA claimed to have breached the £200,000 watershed for a car this year, so the money is out there for the right cars. Meanwhile, the market is also showing strong interest in niche market models. Hankey said: “These are generally doing well and we see plenty of demand for SUVs, 4x4 double cabs and cabriolets.” There is also strong demand in the LCV market. Despite rumblings from some sectors about business confidence, small businesses are still a strong driving force behind the renaissance in van sales and BCA was confident demand will continue. “What every small business wants is a clean, retail-quality van and these have been in relatively short supply, meaning prices have been very strong,” said Hankey. Dealers prepare for influx of used diesel models Figures from Manheim Auctions have shown that dealers need to prepare themselves for the influx of used diesel models that are set to hit forecourts over the coming years. According to the auction house, February 2007 figures show that more than 80 per cent of dealer stock coming to auction is petrol – up on February last year. However, this split is set to start leaning towards oil burners as they begin to account for around 40 per cent of new car sales. In the fleet and lease sector, oil burners currently account for 40 per cent of used sales but Manheim claimed this could rise in the next two to three years. “Dealers are going to see more pre-owned diesels entering the used market and they will need to be clued up on what spec is right to sell and putting the right values to the cars,” said Alan Cureton, dealer sales director at Manheim. “They will also need to decide when to put a diesel part-exchange on the forecourt and when to send it to auction. The right balance of used petrol and diesel stock will be another consideration.”