Are used cars being priced too low?

17 Jun, 2021

There’s a boom in used car prices in the UK happening at the moment, with some price tags even rising by the thousands. However, it doesn’t look like every dealer has jumped on the trend. INDICATA has released data showing that as many as one-in-four used cars could be priced too cheaply.

Car Dealer Magazine has said this might down to some dealers not re-pricing their cars since showrooms opened back up on 12th April. Because of this, there are plenty of cars up for sale which are well below their actual market value.

So, why has the value of used cars gone up in the first place? Autocar has said that it’s a mixture of two things. Firstly, there’s a high demand for cars. This is mostly because of the pandemic, as more people are looking to buy a car so they can avoid public transport. However, the second point is that there’s a shortage of new cars across the UK. So, instead of being put on a waiting list for a new set of wheels, customers are instead turning to second-hand cars. Between high demand and short supply, the value of second-hand is shooting up.

The danger of pricing too low

The main danger of selling cars too cheaply is an obvious one: dealers will lose money. But pricing too low can also make it a lot harder to sell cars. This may seem strange – surely customers should jump at the chance to buy a cheap car? Surprisingly, however, this isn’t the case. In fact, it’s actually more difficult to sell a car which is priced too low, because it appears too good to be true. Customers will assume that there’s something wrong with the car or that it has been ‘wrongly described.’

Take the data from Motor Trade News, for example, where they list two examples of cars being priced too low. The first was a Ford Fiesta, which was originally priced at £6,995 – this was only 94% of its actual market price. Despite being a steal, the car sat in stock for just over one month. But after acting on advice from INDICATA, the dealer upped the cost by £500. The car was sold in the next few days.

The same happened with a BMW 5-Series; it had been reduced down to £27,000 even though its market price was £29,500. According to Motor Trade News, the car looked ‘out of kilter’ on the dealer’s website, so customers were steering clear. However, after increasing the price to its proper market value, the BMW sold within 4 days.

What should dealers do to avoid under-pricing cars?

The best thing dealers can do to avoid any mishaps is to check the market trends every day and set rates based on that. This is more important than ever, especially when the market is changing so quickly. If dealers don’t keep up with these changing trends and up the prices where they can, they risk the danger of limiting any potential margins. Likewise, having accurate online prices is an important part of building customer confidence in website sales.

 

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