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Used car sales recover after COVID-19 lockdowns

Many wholesalers either weren’t trading-in cars, or were making low offers amid market uncertainty, but the used market is now showing signs of recovery.

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The used-car market is showing signs of recovery as lending restrictions – and coronavirus lockdowns – begin to ease.

In the grip of the uncertainty caused by the global pandemic in March and April, many used-car dealers, wholesalers, and new-car lots were offering lower-than-normal trade-in values – or refusing to buy stock.

Many used-car operators were hamstrung by strict new lending practices – and an increase in finance application knock-backs.

As a result many dealers either did not buy in or trade used-car stock, or offered values so low many customers decided not to sell.

However, a number of major car wholesalers in Sydney and Melbourne told CarAdvice the industry is slowly starting to return to normal.

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“I would normally do anywhere between 30 and 40 used a month, but in April I was lucky to get half a dozen out the door,” said one veteran car dealer.

“A lot of people were selling because they lost their job and they wanted to get out of the repayments, but if they didn’t have much equity in the loan (if the payout figure was more than the value of the car) then you couldn’t help them,” he said.

“A lot of people were upside down (the balance of the loan was more than their vehicle was worth), they couldn’t get out of their cars for a price they were happy with – or we were prepared to pay – so they were stuck.”

New-car sales also hit the brakes, with the April market slumping by 48 per cent compared to the same month the prior year, leaving many dealers overstocked.

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Wholesalers, new-car dealers and used-car operators told CarAdvice the industry started to offer lower-than-normal values when the COVID-19 lockdowns hit, because they didn’t know when the market might recover.

“You’ve got to remember, they were talking about shutting down the economy for six months or more, no-one knew how long all this … was going to last,” said a veteran wholesaler.

“And we don’t have endless access to cash, we can’t buy in cars (at normal value) and then wait for the market to recover, you could get burnt yourself (by paying too much for a trade-in),” he said.

The used-car market is regarded by many as an indicator for the economic health of the industry. Used cars account for approximately two-thirds of vehicles sold, the remaining one-third being new automobiles.

In addition to dealers beginning to trade-in used vehicles again, there is another sign the market is recovering. The clearance rate at car company auctions is starting to return to form.

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In one example, Volkswagen Australia recently had a 100 per cent clearance rate of its ex-company cars.

The closed auction – open only to Volkswagen dealers – saw 82 near-new, low kilometre, current model vehicles cleared in one day.

The sellout occurred even though only about one-third of Volkswagen’s network of 100 or so dealers participated in the auction.

It was the first time Volkswagen – Australia’s largest importer of European cars – had held a dealer auction in two months.

Ex-company car auctions are a lucrative way for dealers to boost their used stock with near-new models still under manufacturer warranty.

“The clearance rate and the vigorously competitive bidding are highly encouraging,” said Ben Wilks, Volkswagen’s general manager of passenger vehicle sales.

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Used car sales recover after COVID-19 lockdowns