Used car demand predicted to soften in Q3, says Sword Apak

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Demand for used cars is expected to soften in Q3 ahead of the September plate-change, according to stock funding software provider Sword Apak.

James Powell, Sword Apak executive vice president, said dealers will begin to manage their remarketing cycle and look to reduce the number of stocking days and improve their ‘time to cash’.

He said: “The frequent use of the expression ‘unfavourable headwinds’ connected to the broader economy cannot be ignored, but the greater value in used cars perceived by consumers will, we believe, continue to see demand maintained.

“What we are seeing are signs that dealers are working to reduce stocking days by bringing product to market quicker with a greater focus on stock turn to help improve margins.”

Powell said that economic and social drivers around elements like Brexit has seen lenders tightening their approach to credit and this, alongside an interest rate increase could take the edge of consumer demand further in Q3.

Powell said: “One area that we expected to see impact the automotive retailing landscape, will be with the Financial Conduct Authority’s (FCA) review of motor finance.

“Their report was scheduled for the end of September, with potential implications on finance commission, due to it being among the areas under review. It is now widely believed that this review is likely to be delayed until the end of the year. However, concerns for dealers on finance income moving forward may, and arguably should, linger.”

Used car activity trends YTD

Powell said a clear theme this year is for franchised dealer groups to launch their own used car supermarkets.

It is a move that has seen strong demand for stock, especially in the younger used stock sector.

He said: “There can be little question that this activity has squeezed some smaller independent retailers, who have had to adjust their stocking mix towards older stock.

“Any moderation of buying demand by the major retailers will invariably be back-filled by the independents and this, in turn, is likely to see older, or less desirable stock becoming harder to move.”

Powell said that while there are challenges for the remainder of 2018 his outlook for Q3 is one of cautious optimism that the market will remain broadly stable.

He said: “UK consumers continue to demonstrate resolve, finance remains affordable and the upholding of steady wage growth, along with the Bank of England’s expectation that the economy overall will pick up.”

Powell is expecting dealers to keep a close eye on cost control in the second half of the year with a particular view on stock funding as an area for action.

He is also predicting vehicle prices to move slowly upwards to improve margins and offset potential declines in finance commission in the second half of 2018.