The car market is a funny thing to read at the moment but having spent over 14 years in the trade, I will share with you what is happening and why. I delve in to the new and used markets discovering who is really at fault for the craziest time in vehicle sales I can remember.

The used car market has been having a bumper year so far, with sales and vehicle values doing very well compared to 2008. Stock levels have been low on anything aged between 6 months – 18 months old. This could continue for the immediate short term and possibly into ¼ three this year.

This is due to many varying factors:

1.    New car market slump means people are buying nearly new instead.

2.    Dealers and private buyers had put off buying in the last ¼ of 2008, believing prices would continue to plummet. These deals have happened in ¼ one of 2009, as buyers realised the used car market had dropped its worst.

3.    Dealers are running fewer demonstrators and there are many less dealer self-registered cars appearing.

4.    Many big players in the rental market have changed their strategies since 2008, with most companies extending the time between replacing the existing fleet, from 3-6 months to 6-18 months.

This all makes for low stock levels which is keeping prices buoyant, I think what most people and commentators forgot is that people still have to buy cars. Just because of a recession did everyone think commuters would change a habit that has been with us for decades? What was the average commuter going to do? Use a public transport system that couldn’t cope with the numbers already using it, is wildly expensive, is never on time and is year by year decaying away.

No of course the commuter wasn’t going to do that, what they were going to do was tighten their belts a little. Instead of buying new cars why not save between 20-40% on a year old one. Don’t buy from a main dealer, when independent dealers, auctions and private sales could offer the same cars with a saving to boot. Don’t buy a large car when a family hatch will do, don’t buy a juicy model with all the trimmings and a big thirst, go for the more frugal option. Downsizing has become the new keyword in car buying and there are still great deals to be had on big lumpy stuff, like 4×4’s and large saloon cars.

It’s not always the case that in a down turn business stops, it is that to survive you’re business needs to adapt quickly to the times. Many new car dealers are going to the wall and for me there are two clear reasons why.

Dealers have had good trading times for a long time and have not put money aside for a downturn. The shortcomings of the people in charge of main dealership chains are fairly easy to understand. When the last recession was at its height was over 15 years ago and most people had forgotten its lessons or disregarded them as highly unlikely to happen again. With a borrowing boom surrounding us and clouding the ordinary Joe’s financial judgement, dealers thought this frenzied buying and borrowing would go on for ever. But oh how they were wrong, massive miscalculations in dealer strategies have closed many down and put numerous others on the brink. This is not likely to get better until the end 2009 and more likely well in to 2010 or even 2011.

Secondly let’s talk about the manufacturers, they are just as culpable as the dealer network.  Many manufacturers make dealers spend bundles of money updating showrooms and following strict overhauls which cost the earth and do nothing to achieve better profitability. If a dealer refuses to fall in line they are struck off as a franchised dealer, basically bullied in to submission by the manufacturers.

Back in the eighties profit margins in the U.K were vast with some retailers having as much as 20% margins. Over the years for one reason or other these margins have shrunk, when I was selling new cars some margins used to be as low a 5%. So this means if you are a big volume buyer like one of the large leasing or hire companies you will get more discount than a dealer selling your own vehicle. How the hell does that work as a sustainable business model, well it doesn’t and shame on you greedy manufacturers. You should treat you’re own with the same or better deals than you give others that is a simple business fact.

With most of the money coming in to dealerships via the service department, some London based dealers have been charging their customers up to £180 per hour in labour rates. This makes my blood boil as actually the dealers are making up for sales profits with servicing costs to the customer. This basically means that manufacturers are at fault for taking profits from the dealers making them uncompetitive and forcing their hand, which basically screws the UK customer over. With people looking to save I predict that main dealer service departments will start to lose a lot of custom as average Joe tries to shrink his expenses. This does ring true as back street garages have seen a rise in business, especially those with the correct diagnostic equipment.

To be honest putting all the previous arguments aside, I am of the opinion that in good financial climates many more companies survive whilst making poor decisions and having bad business models. They are dragged along if you like by the boom, but in hard times bad choices and dreadful business planning are magnified and these companies fall by the wayside. I believe this actually to be a good thing, weeding out the rotten or unviable businesses.

Only the strong will survive this downturn and rightly so, the market is overcrowded and needs culling. With big chains having too much say in the industry and manufacturers having too much power, this is all about to change. 2009 will see some large franchised chains go pop and although I feel sorry for employees, I think it’s about time the manufacturers and main dealers felt some pain. Big boys of the industry prepare to be cut down to size.