WILL THE END OF MANUFACTURING DAMAGE USED CAR VALUES?

With Australian-based automobile manufacturing to cease in October, the local automotive industry is braced for change. One area in which the impact is as yet uncertain is in the used car market.

Dealers and fleet managers know that when a new model is approaching release they have two options: discount the old model in a run-out sale or hold onto inventory and hope used car values will hold up.

Complicating things now and into the future is that, with vehicles no longer to be manufactured in this country, not all models will be continued. Used versions of discontinued models tend to have less residual value.

Nick Adamidis, Marketing and Sales Manager at Glass’s Information Services, recently told the Australian Financial Review that fleet managers should consider both the short and long term.

“When a vehicle update occurs, if the change in appearance of the new model is minor, then there isn’t a large impact on the resale values of the discontinued models,” he said.

“If there is a major update to the new model – for example a completely new re-skin – then this may have a further negative impact on used prices for the discontinued model.

“Whether fleet managers buy the current model or wait for the new model depends on the level of discount they are offered. As such, this decision is highly dependent upon each individual fleet’s circumstances with regards to their vehicle changeover policies, the age of their current vehicle fleet and the level of discounting.”

According to Chetan Varsani, Commercial Manager at Pickles Auctions, the secret to profiting from major model changes is for fleet managers to be smart about setting future values.

“In terms of senior series change, our data suggests FMOs can generally set a residual value 15 per cent higher when comparing to a seven-year-old model,” he said.

“We call this the honeymoon period. We find this increase comes down in an exponential fashion as the model gets old.

“This increase allows smart FMOs to really gain advantages on newly released model, however they do need to be prudent and bring that number down quickly as the honeymoon period fades away.”

Learning from the past

When Mitsubishi wound up production of the Magna and 380 it also stopped new vehicle advertising. What followed was a fall in the demand for used models and then a decline in prices.
Similarly for Ford, the discontinuation of model nameplates for non-performance Falcons (non XR8 and XR6 Turbo models) post Ford’s exit late last year has seen a recent drop in residual values.

Toyota and Holden both appear to be managing their exit more thoughtfully, confirming that they will continue with the model names Camry and Commodore, which should limit the impact on future values.

“This will help support residual values going forward, as opposed to ceasing the model name when local production ceases,” Mr Adamidis said.
“It is the new car advertising and marketing for a specific model that maintains awareness for the same model in the used car market. Seeing these new cars driven on the roads, coupled with online, TV, billboard and print advertising, provides constant market awareness in used car buyers’ minds when deciding on buying a second-hand car.
“If awareness remains healthy via advertising of the new model nameplate, demand remains strong in the used car market, then Dealers will see continued demand from the private market and they will, in turn, actively participate in taking in trade-ins and purchases of these second-hand models at auctions, further adding support to the resale value.”

It’s all in the timing

The other main factor influencing used car values is the timing of sales. Demand for used vehicles fluctuates seasonally, with the early part of the year through to April generally the best time to sell.

Prices tend to drop from April through to the ‘winter dip’ in July, at which time car prices are usually at their lowest. They begin to climb again through to November before another drop in low-demand December.

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