Cashflow is king as larger dealers pay premium for used car stock

Cashflow is quickly becoming king as larger car dealers and used car supermarkets pay well above market valuations to secure used car stock, according to Shoreham Vehicle Auctions (SVA) managing director Alex Wright.

Wright said that, while many in the sector have asserted that soaring values and high margins are resulting in bumper profits, smaller retailers are being priced out of the race to fill their forecourts amid a severe shortage of stock.

“Used car buyers for larger franchised dealer groups and car supermarkets are being given permission to pay up to £1,000 above CAP Clean at auction for used cars to ensure they secure stock," he said. 

“Many dealers do not have the cashflow or wholesale funding budget to compete with this buying power and is why many forecourts are now looking empty and businesses are struggling to make money."

Auto Trader reported last week that more than one-in-10 nearly new used cars are now more expensive than their brand new equivalents as limited supplies and soaring demand delivered an 18.6% year-on-year rise in values.

And yesterday Indicata said that its data showed that used car prices had risen by 16.6% during the first eight months of 2021, with an imbalance between supply and demand dictated that customers would “clamour for whatever stock they can get their hands on”.

Shoreham’s Wright said that many car retailers are struggling to keep their used car stocking levels above 50% of their normal levels, however, as they fight to buy stock at auction due to the increased competition levels.

He said: “Everybody thinks that just because the used market is buoyant that all used car dealers are making handsome profits each month.

“That’s not the case with many dealers I speak to struggling to buy replacement stock and sell enough cars to cover their business overheads in the current market.

“The dealers making money are the brave ones that pay top prices, secure good quality stock and then sell it at prices ahead of the used valuation guides.”

Shoreham said that many used cars at 12 months and younger had been selling for around the same price as new in the retail market at irts auctions.

The trend was most prevalent in the premium SUV sector as impatient consumers switch to used cars due to new car supplies being compromised by the global semiconductor shortages, it said.

Wright is reminding dealers to ensure stock cars are priced to compete with rival dealers to make a healthy profit per unit.

He said: “It is not in many dealers’ mindsets to increase used car prices as generally unsold stock is reduced in price after 60 or 90 days.

“In this volatile market prices should be revisited on a daily basis and increased where necessary to ensure cars are sold at the current market value.”