Collapse of the used car market explained.
Discussion
I am bored and I have also noticed multiple threads on used car prices. These discussions can be found in threads such as:
https://www.pistonheads.com/gassing/topic.asp?h=0&...
https://www.pistonheads.com/gassing/topic.asp?h=0&...
There is more to it than semi-conductor shortages so let's take a chronological approach.
Things have been brewing for a while between franchise dealers/main dealerships, independent dealers (sole traders or ltd companies), and car supermarkets.
Car supermarkets have been around for some time and appear to be multiplying. Many offering convenient online buying processes and a 7 day money back guarantee (pending no damage to the car). Think of some car supermarkets a bit like when Tesco Metro purchased your local newsagent.
An Automotive Consultant online sums it up: “Online independent used car retailers have grasped that if you control access to used car stock then you control access to both used car customers and the market” - Banning.
Franchise/Main Dealers have tried to put a squeeze on the independents. Dealers are able to offer manufacturer warranties and discounts on select items such as alloy wheel insurance (those diamond cuts are not suited to UK roads by the way). Some dealerships are now also offering a 2 year warranty and 2 year MOT guarantee.
However, car supermarkets (and even independents) have several advantages too which dealers can sometimes find harder to compete with. For example, a good independent will have a solid reputation to maintain and relies upon that. Whereas, some car dealership managers note that their staff can be lazy or not as motivated.
The semi-conductor shortage initially began around 2018 with Intel.
There have also been threads on PH for that too where a dealership does not want to sell a car or a salesman might have been having a bad day.
Franchise/Main Dealers have also wised up albeit a bit late, to the fact that if you control the stock you can control the customers, like the car supermarkets are able to do. However, with the existential battle, things are complicated and many dealership directors do not realize that they are at danger of losing the battle.
For example, taking the: "If you want it then you will pay what I ask for and not a penny less" approach is starting to become abrasive for some dealerships. You can only over-price a car so much and expect people to pay over the odds.
A quick search shows over 1800 used BMW's available from independent dealers (and car supermarkets). You might not get that one year warranty built into the price but you can always purchase a third party one or official BMW (Mondial) one. Some of the used examples also have full main dealer history.
COVID-19 saw dealer stock dwindle further. Many were working from home and lock down also meant not everyone was driving their usual miles. This also meant that owners were holding on to their cars as they had no plan to upgrade. As noted on PH, one dealership shifting over 60 used cars a week were seeing that as a monthly figure.
COVID-19 saw some dealerships holding on to stock for longer too and over-pricing it. Many dealers were honest when I presented BCA figures, even after the dealer mark-up the car was over-priced by £3,000. The dealer said there would be no come down on price. Think AutoTrader where that arrow points toward 'high' price and there is a grey text below saying something like: £2750 above market average.
Things spiraled and there were other incidents such as floods in Taiwan, COVID-19 closures to Japanese factories, and increased tech wars. There are several other reasons for the shortage as well, not worth going into. As already stated on here there are other causes such as cryptocurrency being used to buy up stock. With increased demand some semi-conductors are overpriced.
What does this all mean? It is a seller's market. There is little point in buying unless you can afford a used car or really need one. As noted in the ask a salesman thread, if someone has a car to dispose of then they will clearly benefit from selling their asset if they have no plans to buy a replacement.
When will semi-conductor supply become stable? It could last well in 2022 it is expected. It also means that some new cars cannot be specified (built) with certain options. For example, a quick search on one site means reverse parking cameras cannot be added due to the "chip" shortages. This has also led to some pressure on the used market with buyers searching out and seeking the specification they want (or close to) in used form.
With the gap between used car prices and new car prices being insanely close, many are questioning their decision to take that initial depreciation hit on a new model.
Can you negotiate price? Evidence on the car buying forum suggests that there is not much that can be done about sticker price but small additions may still be possible such as free mats and a tank of supermarket fuel. Now is not the time to say you found a like for like car on an online website with the same mileage, the logic has gone out of the window. Businesses need to survive and so not many will even consider price matching. It's a fight for survival for many a business hit by COVID-19.
How long will prices stay high? It is anyone's guess. If people continue to buy at a higher price (the dealer thinks the car is worth more than market value) then market values will shift. If someone signs up for a 3 year PCP agreement, the balloon figure will reflect the value the dealer thinks the car will have down the road/toward the end of contract. Car supermarkets and franchise dealers will continue to compete too. No one can answer the question truly because you don't know when the next pandemic will hit or if ICE engines will be outlawed sooner (even if they will be hard to get rid of and it is not straightforward).
Closing thoughts: I wonder how the insurance industry will respond. When a car is written off, many insurers could not care less if you had nappa leather or dakota... they price a write off according to market average and tend to go for the lower figure. If your shiny SLR is on sale £6,000 cheaper at your local independent compared to a franchise, same mileage and age, then they won't agree to pay what a dealership might sell it for let alone buy it for. A bit like the FCA attempted to clamp down on unscrupulous practices, in my humble opinion, something (probably not possible) may need to be done here. If a dealer takes your part-exchange on for a cap clean figure, and it literally needs no work doing to it (these cars do exist and I have one), they will still sell it on for £3000-6000 more, well in my case they will in the current climate - queue barrage of angry salesmen on PH rampaging through the thread. As I have already mentioned, I am aware jobs are at stake and dealerships are trying to survive.
Not sure if this helpful to anyone. Not quite a rant. More of piecing it together for my own understanding.
https://www.pistonheads.com/gassing/topic.asp?h=0&...
https://www.pistonheads.com/gassing/topic.asp?h=0&...
There is more to it than semi-conductor shortages so let's take a chronological approach.
Things have been brewing for a while between franchise dealers/main dealerships, independent dealers (sole traders or ltd companies), and car supermarkets.
Car supermarkets have been around for some time and appear to be multiplying. Many offering convenient online buying processes and a 7 day money back guarantee (pending no damage to the car). Think of some car supermarkets a bit like when Tesco Metro purchased your local newsagent.
An Automotive Consultant online sums it up: “Online independent used car retailers have grasped that if you control access to used car stock then you control access to both used car customers and the market” - Banning.
Franchise/Main Dealers have tried to put a squeeze on the independents. Dealers are able to offer manufacturer warranties and discounts on select items such as alloy wheel insurance (those diamond cuts are not suited to UK roads by the way). Some dealerships are now also offering a 2 year warranty and 2 year MOT guarantee.
However, car supermarkets (and even independents) have several advantages too which dealers can sometimes find harder to compete with. For example, a good independent will have a solid reputation to maintain and relies upon that. Whereas, some car dealership managers note that their staff can be lazy or not as motivated.
The semi-conductor shortage initially began around 2018 with Intel.
There have also been threads on PH for that too where a dealership does not want to sell a car or a salesman might have been having a bad day.
Franchise/Main Dealers have also wised up albeit a bit late, to the fact that if you control the stock you can control the customers, like the car supermarkets are able to do. However, with the existential battle, things are complicated and many dealership directors do not realize that they are at danger of losing the battle.
For example, taking the: "If you want it then you will pay what I ask for and not a penny less" approach is starting to become abrasive for some dealerships. You can only over-price a car so much and expect people to pay over the odds.
A quick search shows over 1800 used BMW's available from independent dealers (and car supermarkets). You might not get that one year warranty built into the price but you can always purchase a third party one or official BMW (Mondial) one. Some of the used examples also have full main dealer history.
COVID-19 saw dealer stock dwindle further. Many were working from home and lock down also meant not everyone was driving their usual miles. This also meant that owners were holding on to their cars as they had no plan to upgrade. As noted on PH, one dealership shifting over 60 used cars a week were seeing that as a monthly figure.
COVID-19 saw some dealerships holding on to stock for longer too and over-pricing it. Many dealers were honest when I presented BCA figures, even after the dealer mark-up the car was over-priced by £3,000. The dealer said there would be no come down on price. Think AutoTrader where that arrow points toward 'high' price and there is a grey text below saying something like: £2750 above market average.
Things spiraled and there were other incidents such as floods in Taiwan, COVID-19 closures to Japanese factories, and increased tech wars. There are several other reasons for the shortage as well, not worth going into. As already stated on here there are other causes such as cryptocurrency being used to buy up stock. With increased demand some semi-conductors are overpriced.
What does this all mean? It is a seller's market. There is little point in buying unless you can afford a used car or really need one. As noted in the ask a salesman thread, if someone has a car to dispose of then they will clearly benefit from selling their asset if they have no plans to buy a replacement.
When will semi-conductor supply become stable? It could last well in 2022 it is expected. It also means that some new cars cannot be specified (built) with certain options. For example, a quick search on one site means reverse parking cameras cannot be added due to the "chip" shortages. This has also led to some pressure on the used market with buyers searching out and seeking the specification they want (or close to) in used form.
With the gap between used car prices and new car prices being insanely close, many are questioning their decision to take that initial depreciation hit on a new model.
Can you negotiate price? Evidence on the car buying forum suggests that there is not much that can be done about sticker price but small additions may still be possible such as free mats and a tank of supermarket fuel. Now is not the time to say you found a like for like car on an online website with the same mileage, the logic has gone out of the window. Businesses need to survive and so not many will even consider price matching. It's a fight for survival for many a business hit by COVID-19.
How long will prices stay high? It is anyone's guess. If people continue to buy at a higher price (the dealer thinks the car is worth more than market value) then market values will shift. If someone signs up for a 3 year PCP agreement, the balloon figure will reflect the value the dealer thinks the car will have down the road/toward the end of contract. Car supermarkets and franchise dealers will continue to compete too. No one can answer the question truly because you don't know when the next pandemic will hit or if ICE engines will be outlawed sooner (even if they will be hard to get rid of and it is not straightforward).
Closing thoughts: I wonder how the insurance industry will respond. When a car is written off, many insurers could not care less if you had nappa leather or dakota... they price a write off according to market average and tend to go for the lower figure. If your shiny SLR is on sale £6,000 cheaper at your local independent compared to a franchise, same mileage and age, then they won't agree to pay what a dealership might sell it for let alone buy it for. A bit like the FCA attempted to clamp down on unscrupulous practices, in my humble opinion, something (probably not possible) may need to be done here. If a dealer takes your part-exchange on for a cap clean figure, and it literally needs no work doing to it (these cars do exist and I have one), they will still sell it on for £3000-6000 more, well in my case they will in the current climate - queue barrage of angry salesmen on PH rampaging through the thread. As I have already mentioned, I am aware jobs are at stake and dealerships are trying to survive.
Not sure if this helpful to anyone. Not quite a rant. More of piecing it together for my own understanding.
As a car salesman i found this interesting.
Not sure why you think any of us would be angry rampaging through it,
I guess i am one of the lucky ones, our jobs are not at stake nor is our business, very secure and its the best time we have had in 15 years for the used car market.
Not sure why you think any of us would be angry rampaging through it,
I guess i am one of the lucky ones, our jobs are not at stake nor is our business, very secure and its the best time we have had in 15 years for the used car market.
Edited by Dan W. on Thursday 16th September 16:50
Do wonder how long it is before people just start thinking ' nah... That's too pricey I'll just wait'.
Which is my current situation. Have sold one car, and was going to trade up one of my others, but looking at the prices I'm just going to wait it out rather than paying over the odds for a car which will then tumble further when new cars come out.
Also means that lease/finance deals in future could be awesome as manufacturers will be wanting to sell new cars as they have been somewhat limited over the past 18 months.
Which is my current situation. Have sold one car, and was going to trade up one of my others, but looking at the prices I'm just going to wait it out rather than paying over the odds for a car which will then tumble further when new cars come out.
Also means that lease/finance deals in future could be awesome as manufacturers will be wanting to sell new cars as they have been somewhat limited over the past 18 months.
How long before the anti monopoly police turn their attention to BCA?
Their ownership of WBAC is one thing but since they started up Cinch they have all ends of the used market covered. It also probably goes some way to explaining the current used car price bonanza as they can take on cars through WBAC and pay better rates than a few years ago then sell them through their own business cutting out a layer. The big groups can compete but it leaves the independent in a tricky place as trade ins dry up, unless they focus solely on the older/auction stuff.
Their ownership of WBAC is one thing but since they started up Cinch they have all ends of the used market covered. It also probably goes some way to explaining the current used car price bonanza as they can take on cars through WBAC and pay better rates than a few years ago then sell them through their own business cutting out a layer. The big groups can compete but it leaves the independent in a tricky place as trade ins dry up, unless they focus solely on the older/auction stuff.
Edited by colin79666 on Thursday 16th September 17:53
Different market but might still be of interest.
Wife Leased a Tiguan in 2012 for $270/month with $0 down. The list price was around $26k at the time. After 3 years she had 5k miles on it and we decided to buy it for $16k. That meant we purchased the car for $25,720 excluding tax. We attempted to trade it in to Audi with 39k miles very recently and received an offer of $6k.However, I had already run it through a couple of the WBAC equivalents out here and had an offer of $11,508.
Car is now on the market at $16k.
The Audi is also interesting (to me). One garage was very busy taking orders for preconfigured cars that were landing in the next few weeks. They added $2k to the sticker price. I went to another dealer down the road and bought a car from the same list at discount.
Wife Leased a Tiguan in 2012 for $270/month with $0 down. The list price was around $26k at the time. After 3 years she had 5k miles on it and we decided to buy it for $16k. That meant we purchased the car for $25,720 excluding tax. We attempted to trade it in to Audi with 39k miles very recently and received an offer of $6k.However, I had already run it through a couple of the WBAC equivalents out here and had an offer of $11,508.
Car is now on the market at $16k.
The Audi is also interesting (to me). One garage was very busy taking orders for preconfigured cars that were landing in the next few weeks. They added $2k to the sticker price. I went to another dealer down the road and bought a car from the same list at discount.
Smiljan said:
Does it have silly low miles or something? Seems very high at $16k looking at US Autotrader
I was surprised by the high offer price and the listing price. When I looked at auto trader it was ambitious private sellers that were over the offer from Carvana. The car was in amazingly good condition which did not seem to matter. It also had new brakes and tyres, new inspection and new registration. Oh, and had just been serviced and I had fixed a common fault causing low power. Overall, in great shape so at least the person buying is getting a good example.This is it 2012 Tiguan 39k miles $15,990
I think the business model of the company selling is to pray on people with bad credit and over charge them on the purchase price and then have high interest rates.
MitchT said:
Ursicles said:
Do wonder how long it is before people just start thinking ' nah... That's too pricey I'll just wait'.
I'm already at that point.h0b0 said:
Smiljan said:
Does it have silly low miles or something? Seems very high at $16k looking at US Autotrader
I was surprised by the high offer price and the listing price. When I looked at auto trader it was ambitious private sellers that were over the offer from Carvana. The car was in amazingly good condition which did not seem to matter. It also had new brakes and tyres, new inspection and new registration. Oh, and had just been serviced and I had fixed a common fault causing low power. Overall, in great shape so at least the person buying is getting a good example.This is it 2012 Tiguan 39k miles $15,990
I think the business model of the company selling is to pray on people with bad credit and over charge them on the purchase price and then have high interest rates.
I'm still not sure these crazy current prices can hold out for too long. My Golf R is valued at £2k more than I bought it for 2.5 years ago and I've put 25,000 miles on it since then. No way I'd be paying that price if I was in the market for it now.
I know nothing about selling cars but I predict that the direction that Cinch and Cazoo are taking will be the future of car sales.
The younger generations are of the mindset that you can buy almost anything online, so why not a car? The days of trudging round car dealer forecourts looking for the 'perfect' car will be a thing of the past eventually I reckon.
The younger generations are of the mindset that you can buy almost anything online, so why not a car? The days of trudging round car dealer forecourts looking for the 'perfect' car will be a thing of the past eventually I reckon.
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