It is fair to say that the car market, as a whole, in the United Kingdom has been hugely depressed for the whole of 2008. The third quarter of 2008, from July, August and September, was particularly punitive for the used car market, with total used cars sales down by more than 7%. Used executive and luxury car sales fared worse, down by more than 13% and 15% respectively. Rising fuel costs, car tax costs, and a shortage of credit, as a result of the credit crunch, are all partly to blame, but the fact is that a typical three-year-old car, retains only somewhere between 30% and 40% of its original list price.
Used Cars Now and in the New Year
The used car market is unlikely to experience a significant increase in demand ahead of the Christmas period, as cash-strapped consumers concentrate on paying their household bills, and other bare essentials. January, however, has traditionally been a good period for the used car trade, so troubled dealers who have reduced prices by necessity, are operating on significantly tighter margins, and hoping that this will be the case once again, although there is no guarantee. In fact, many dealers who can afford to do so are buying used cars in bulk, with a view to offering huge discounts during, and beyond the Christmas period. This means that the New Year could bring some amazingly good deals on used cars, as dealers strive to rekindle consumer interest in the market.
The used car market has experienced lean times before and while used car dealers are under mounting economic pressure at present, there are some causes for optimism. The economic downturn in the United Kingdom is teetering on the brink of official recession and is leading many consumers, who would otherwise buy a new car, to consider a used car as a viable alternative for economic reasons. Falling used car prices means that bargain hunters are entering the market. Indeed, recent figures suggest that consumers intend to spend 12% on used cars between November 2008 and February 2009 than was the case during the summer months. 5 million consumers, or more, are planning to buy a used car during that period, representing a total spend of over £25 billion, at an average of £5,000 per car. The outlook for unemployment in the United Kingdom is, however, bleak. Unemployment is actually rising at its fastest rate for 20 years and may reach 3 million by the end of 2009, which may reduce demand for used cars in turn.
The recent reduction in the standard rate of VAT from 17.5% to 15% has buoyed the used car market slightly, insofar as used car dealers with sales that qualify for the VAT Margin Scheme, a scheme whereby dealers pay VAT only on their profits, are better off by £25 per £1,000 profit. This amount is unlikely to have a major impact, however, and confusion plus a general lack of confidence remains over the administration of Vehicle Excise Duty. A new top band for VED, for drivers of vehicles emitting more than 225 grams of carbon dioxide (CO2) per kilometre, is to be introduced in 2009, at a cost of £425 per year. It remains to be seen what effect this and other changes to the way VED is structured, will have on the used car market. Estimates suggest that 45% of the vehicles on the road, which is a total of nearly 9 million, will face an increase in road tax for one reason or another in 2009.
Used car dealers have been quick to realise that they are operating in a buyers' market, and, while price is always likely to be the major factor underlying any purchasing decision, that the shrewd used car buyer of today is looking not only for the most competitive price, per se, but also for the most attractive package, overall. If buyers feel that they are being offered a package that offers long term savings, in terms of money, or time whether it be, for example, cut-price servicing, the use of a courtesy car, etc., they are often more likely to buy than if just the screen price, itself, is reduced.