THE TABLES HAVE TURNED. NOW IS A GOOD TIME TO BE A USED CARS SALESMAN - Manny De Canha, CEO - Associated Motor Holdings

The recession experienced across the world in the last 18 months has changed he way consumers buy cars. This is a fact evident in South African figures: for every three cars bought, two are purchased from the used car sector The downturn bought a lot of pain to the new car dealers while used car dealers found several new markets thanks to changes in the economy.

Firstly the recession hit the middle class really bad and with a record number of repossessions reported by all four of the large banks. These cars were re-sold by the used car segment, with many brands offering buyers a quality and cost effective purchase on various models. Many first time buyers of cars have been able to enter the car market through used car offerings, contributing to the 10 percent growth in cars on South African roads.

Now, as consumers recover from a black hole of debt, many are choosing not to go the new car purchase route. Their reasons are varied but for many, the recent recession illustrated the power of a decline in personal wealth. Many experience it with property values, others with currencies and some saw their fortunes fall on the stock market. Many are looking for opportunities to escape this economic phenomenon and are finding it in the used car market. Quality, low mileage used cars are finding buyers quickly. For many buyers they see the value of purchasing a car that is two or three years old, kitted out with high end gadgets and modern safety features, without affecting their status and social standing in life. Buyers are also aware that in the used car market, their money goes a lot further and they can upgrade to a more luxurious model without over-extending their budgets.

The banks have also recently slowly started to extend more loans to consumers who have used the recent spate of low interest rate to clear their debt and establish a more solid financial foundation. Used car financing registrations increased with an average of 16% in the first two months of 2010, which was almost double that compared to the new car market. And with zero inflation in the new car market buyers are choosing “nearly new” over brand new.

The largest demand has been in the R50 000 to R150 000 segment, where consumers are finding that used cars offer better value than new cars. In this segment the monthy repayments take up a large part of the family budget and consumers are looking for the best value they can find. Used cars offer them a change to own a car with more power, more space, more accessories and  more luxury than the choices offered to them in the same price bracket on new car dealers’ floor.

The challenge used car dealers face is to source good quality, low mileage stock. Since a number of drivers are choosing to hold on to their cars longer that in the previously booming economic times. The repercussions of these decisions is that used car dealers are being bombarded with much older models than in previously years, some of which are too old to qualify for finance. But like many South African industries, soccer could score the used car industry a very prosperous goal.

In the first quarter of 2010 new car sales rose, partly due to large orders from the car rental industry in anticipation of the 2010 FIFA World Cup. Industry experts believed that a large de-fleeting of vehicles from the car rental sector will see the market increase in the number of quality, low mileage used cars into the used car segment post World Cup. This is good news for used car dealers who will have an increase in stock for an increasingly growing market.

Experts also point to the increasing price of new cars as a positive factor for the used car market. As we up-spec our vehicles with the latest technology to satisfy customers demands and expectations, new vehicles become more expensive to manufacture.

Affordability purchasing decisions and a used car that is one or two years old, still offers the buyers a taste of these innovations but at a reasonable reduction of the original cost. The old saying that ‘buying a used car means taking on someone else’s problem’, is now changing to ‘buying a new car means taking the financial hit for someone else.’

Another South African phenomenon is helping the used car industry, crime. Many sellers who would prefer to sell their car through private channels are making the decision to hand it over to reputable used car dealers who have the security and knowledge to recognise scam buyers. This will become a huge channel through which the used car networks can source their stock, which in other countries couldn’t be open to them.

The Rand has also played a part in keeping used car sales buoyant. The incredible retail cost of new vehicles available in South Africa in relation to our income is out of balance and will also influence the market. The used car industry will profit from this perception well into the future until a stronger economic outlook and strengthened rand will bring new car prices down. Recent increases in the fuel price have also prompted some customers to down size from ‘gas guzzlers’ and the overall global trend is towards smaller cars. Anticipation of the new CO2 tax later in the year also suggests that the prices on new vehicles will have to increase and the results will further strengthen the used car market.

Until then, the used car industry looks set to hold the high ground, with used car sales expected to continue to out-run the new car segment. And while overall prices of used cars are not expected to increase in the short term, however, there are pockets of used cars where demand exceeds supply and it is these areas that dealers should look to better profit opportunities.

The future looks great for the used car industry and experts agree that it will be the used car industry that will benefit and enjoy the greatest opportunity before the new car industry from any up-turn in the economy.

Quality display and the condition of used cars will therefore play a huge role in the success of this growing used market.

Dealers must learn to do this correctly and see it as a great opportunity.