Dealer demand for used car stock remains high, in spite of concerns about residual values and fears of rising inflation.

This is the key finding from global wholesale funding software experts Sword Apak in its latest quarterly outlook for used vehicle stocking activity.

On the back of a record sales performance in the first six months of the year that saw the UK’s used car market grow by 7.9% to a new record high of 4,181,042 units, the highest number of sales since records began, the market momentum appears to have been maintained into Q3.

Sword Apak attributes the strong performance this year to the emergence of used car PCP finance, which has helped to promote affordability, and to a modest increase in the disposable income of consumers as they choose to spend rather than save in light of continuing low interest rate levels.

Sword Apak’s executive vice president James Powell said: “In used car buying activity, the British dealer and consumer have both demonstrated their resilience against a dynamic backdrop.

“Dealers have worked hard to increase stock turn by careful stock buying and by developing strategies to bring product to market more quickly.

“Margins may be tight but this retailing focus on ‘time to cash’ has enabled them to fulfill consumer value needs.

“In Q4, we expect some seasonal adjustment in stock volumes, but potentially the reduction in the value of sterling may further strengthen the used car proposition in the weeks ahead.

“As a result, we expect many dealers to remain active as both buyers and sellers.”

The overall picture is that dealers are continuing to seek out used stock to meet demand.

To achieve this, dealers have widened their search for used car stock with some major dealer groups, even advertising their car buying appetite via TV advertising.

Strong dealer demand for stock is clearly sustaining stock values in spite of the increase in end of contract (PCP and leasing) stock that has been expected to place downward pressure on values.

Sword Apak’s positive outlook for used sales in 2016 is centered upon rising consumer confidence, the affordability provided by used car PCP finance and the emerging control of supply management.

“When combined, they look set to more than offset the growing inflationary threat; indeed, rising new car prices could help the used market.”

US market comparisons

The UK situation mirrors a similarly strong US used car market.

Q2 saw a 1.8% year on year increase in sales to 9.8M units.

This represented the highest Q2 sales performance in the USA since 2007.

Of particular note was strong growth in certified pre-owned sales through franchised dealers; an increase here in the under three-year old market helping to drive prices up to a record $19,367 average price.

In the USA, the economy grew by 1.4% during the second quarter, with the latest inflation data revealing 1.5% price growth.

Again there is a broad similarity with the UK.

The falling value of sterling saw inflation rise to 1% in September (up from 0.6% in August, according to the latest Office for National Statistics research).

This was more than offset by a 2% rise in wages inflation as employment levels stayed broadly static.

It is a situation that has seen the International Monetary Fund (IMF) raising its forecast for UK GDP growth this year to 1.8%, which makes it the fastest growing of the G7 leading industrial countries.

However, into 2017, the IMF has cut its forecast for UK economic growth to 1.1%.