New Or Used Car: What’s the Best Deal?

The effects of significantly reduced new car sales over the last 24 months will have long reaching implications for the automotive business. Industry experts are forecasting a shortage of used car stock (mainly de-fleeted corporate vehicles) after March 2011 as a consequence of up to 40% reduction in new car sales 3 years earlier.

Historic new car sales effect the availability of good quality used cars and their prices. If supply reduces then prices are likely to hold firm or even increase provided demand remains the same, but by the time 2011 comes around there may well be other factors to take into consideration.

Firstly motor manufacturers don’t get rich out of the sale of used cars as these are dealer and economy driven and therefore the manufacturers will be looking to force new cars into the market in the face of used car shortages. If the market for new cars isn’t strong enough then this is likely to be achieved by enhanced consumer offers with greater discounts thereby narrowing the gap between the cost of buying a new or used car.

Equally manufacturers may be able to make new car offerings even more attractive by controlling the availability of “affordable payment” finance offers providing interest free credit or highly competitive PCP monthly payments for example, making the new car proposition even more attractive.

One of the main areas of focus for many manufacturers over the next 12 months will be the fleet market as this is seen as a quick fix for new car sales. Traditionally fleet programmes have been based around an average replacement cycle of circa 36 months, but in uncertain times manufacturers have previously sought to introduce exceptional 6 – 18 month deals supported by guaranteed residuals and cheap finance rates, “deals too good to miss” for the likes of daily rental companies which may accelerate the availability of high quality, late used cars which will influence the used car supply chain.

So what conclusions can be reached? Well, good late used cars may become scarcer but simply assuming that prices of used cars will rise is potentially dangerous. It is more likely that during a period of relatively slow economic growth (if any), new car prices will start to reduce via a number of different mechanisms, as is happening right now and that this will serve to cap the overall prices achieved for used cars going forward. The other major factor influencing new car sales is the VAT which is set to rise to 20% from January 2011, increasing new car prices across the board.

One thing is for sure – now is the time to buy a new car. Buying before 31st December 2010 will ensure great new car discounts as well as a guaranteed 2.5% saving on VAT – wait til 2011 and it will be a very different story!

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