How is the coronavirus crisis affecting the used vehicle market?

The coronavirus lockdown is undoubtedly having an unprecedented impact on the used vehicle market. The situation has meant sales have essentially ground to a halt – and it is impossible to predict when restrictions will be relaxed and business will return to normal.

Understandably, there is a general thirst for knowledge about how the scenario might develop and one of the most interesting initial analyses has come from used vehicle pricing experts Indicata.* They have looked at how four major parts of the sector are likely to be affected as they come out of the crisis – dealer groups, manufacturers, rental companies and leasing companies. All groups have the ability to make use of 1link Trade Buyer and 1link Disposal Network.

Firstly, they point out that for dealer groups, stock turn will be essential. In a market where used prices are likely to be falling and sales rates slowing, retailers will have to focus heavily on ensuring their pricing policies do not allow vehicles to age and become uncompetitive in price. Buying the right stock and constantly repricing it to the market will be the key to success.

Manufacturers will probably face different challenges as they are hit with larger than expected volumes of rental de-fleets. Those who have traditionally tried to sell their used car stock solely through franchised dealers may find increased volumes and lower network capacity a challenge. Fragmenting volumes into a wider range of non-franchised operators is likely to be much more effective in protecting residual values.

Indicata says that rental companies may default on their supply contracts with manufacturers, leaving the latter with a stock of unregistered and pre-registered vehicles. In addition, rental de-fleets will need to be managed very carefully, and rental companies may try and hold onto high-risk vehicles until conditions improve. Especially, demand volatility will mean the used market’s capacity to absorb stock at any one time will become limited.

Finally, the task for leasing companies will probably be to manage the effects of instability in the used market while accepting that there may be no short-term recovery in residual values. In the 2008 financial crash, many leasing companies extended vehicle contracts and this is one solution but, even allowing for this strategy, vehicles will still need to be remarketed over the downturn.

All of these observations make interesting reading, we’re sure you will agree, and we’ll keep you up to date with other market analyses in future posts.


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