Balancing used car supply and demand after the COVID-19 crisis

INSIGHT | 20 MAY, 2020

The wholesale market for used cars is driven by the dynamics of supply and demand. Fluctuations of either will impact prices and desirability, with peaks and dips part of the cut and thrust of the market’s checks and balances.

However, the unique circumstances presented by the COVID-19 crisis changes everything with car plants around the world shut down and showrooms closed.

Consequently, there is an expanding logjam of cars waiting to enter the wholesale market; scheduled defleets from businesses and rental companies and end of contract private cars funded on Personal Contract Purchase and Personal Contract Hire agreements.

With the lockdown starting back in March, the biggest month for the supply of new fleet and private cars and the churn of their replacements, these volumes are high.

So with no shortage of supply, what about demand? We know from the online classified sites that many buyers stuck at home are busy online searching for their next car purchase.

After the lockdown is lifted the demand for used cars is likely to be high. Commuters, wary about returning to busy trains and buses, may be considering used cars instead. Used cars will also appeal to buyers concerned about their financial situation.

Meanwhile, we can expect to see inertia in the new car market as OEMs tackle the challenge of restarting production lines. Once factories start to reopen they will be working flat out to meet outstanding orders, so anyone entering the market for a new car will be going to the back of the queue and could face lengthy waits. This should prompt some to look at used alternatives and good quality defleeted cars will have a strong appeal.

Growing levels of supply and pent-up demand have the makings of a perfect storm.

With thousands of end of contract cars in limbo, there will be a pressing need to present them to the wholesale market, enabling fleets to realise their assets and dealers to restock. Waiting for the next available auction day may not be an option. While speed to market will be critical, so too will the need to observe social distancing and trade buyers may be understandably wary of returning to auction halls.

From the conversations we are having we know vendors and buyers are using the lockdown as an opportunity to re-evaluate the way they dispose and acquire vehicles with online remarketing making more sense than ever before.

Many businesses keen to liquidate their assets and reduce any further exposure to depreciation are investigating online remarketing for the first time and are beginning to appreciate the expediency and cost savings.

For dealers stock levels were low going into the lockdown, so inventories will need replenishing. Sourcing stock online will give them immediate access to desirable defleeted vehicles and in the future they will benefit from being able to source cars the moment they become available, rather than weeks later; upstream not downstream.

With the Department for Business, Energy and Industrial Strategy clarifying that dealers can now sell cars remotely and deliver them in accordance with social distancing measures, some of the used cars already held in dealer inventories are starting to find their way to buyers. These are welcome first steps.

When the lockdown measures are eased and eventually lifted, online remarketing should become the default choice of more fleets and dealers who will not just benefit from the immediacy and cost efficiency but the removal of multiple physical touchpoints. This digital-first approach will resonate with businesses evolving with what will be the new normal.

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