Inflated used car prices leaves small dealerships struggling to buy stock

24 Sep, 2021

Between January and August this year, used car prices rose by 16.6%. These rocketing prices were welcomed by lots of motor traders, both big and small, especially considering the hard times caused by three lockdowns.

However, it seems that the initial joy of high used car prices is over, as smaller dealerships are struggling to afford new stock. This issue is still circling back to the shortage of new cars, which we’ve mentioned before. The global shortage of semiconductor chips is still raging on, and it’s got to the point that some nearly-new cars are more expensive than brand-new models.

This in itself is surprising; after all, you don’t expect to see a 6-month-old car cost more than the brand-new version, right? The seesaw of supply and demand has definitely come down hard on the demand side, with drivers clamouring to buy used cars and a huge shortage of new cars on the production line.

Sort of like the London property market, it’s brought the motor trade industry to thinking ‘all stock is good stock’. As long as it has four wheels and an engine, used cars are being snapped up at online auctions and basically everywhere else, too. Dealers are keeping the majority of part-ex cars for new stock, and online auctions are reporting 100% of their stock being bought up.

David and Goliath: the buying power of motor trade giants

Unfortunately for a lot of smaller dealerships, times are getting tougher as motor trade industry giants are snatching up all of the used cars already out there. As bigger companies, they’ve got a lot more money to spend on new stock, especially when compared with smaller businesses who are probably on a stricter budget.

During times like these when used car prices are sky-rocketing, the huge buying power of bigger companies gives them an advantage over smaller dealerships, leaving many unable to replenish stock once it’s sold.

Alex Wright, MD of Shoreham Vehicle Auctions (SVA), said that ‘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.’

It’s a tricky time to be a dealer, with the industry swinging back and forth between too little demand and then too much. Although we can’t advise you on places to buy new stock in the current climate, we have put a few top tips together so that you can make the most of the current boom as much as possible. You can also check out our regional auction posts.

While you are collecting stock, make sure you get it onto your motor trade insurance and ask your broker to update the MID for you so everything is protected. In many cases cars you’re buying can be added easily the same day.

To speak with an expert about your motor trade insurance needs, give us a ring on 0121 248 9300 or use our enquiry form below: