Where do all the used cars go?

Where do all the used cars go?

788,424 new cars have been registered in the European Union within the first 6 months of 2014. This is the lowest number since the European Automobile Manufacturers Association started keeping track of this statistic. Nevertheless, the sheer number is still impressive. The question I ask myself, though, is what happens to all the used cars, because they aren’t all sold in their home countries?

We can understand why people buy new cars; they are not only more luxurious and safer but, also, more environmentally friendly. About the last point, however, you can have a long discussion. Is buying a new car actually beneficial for the environment? On one hand the average fuel consumption improves, while on the other the energy and resource-intensive production process has to be taken into consideration as well. The cars that disappear from our streets either go for scrap, or they are exported to another country. Exact figures, though, are not available. And yet those statistics are of great interest, if you think of our efforts to have a high retention of cars in the used market. The figures that are available show that, within the European Union, Germany is by far the biggest exporter of used cars. Where these used cars will be exported to is a matter of price.

A small share of pre-owned cars are shipped to Africa. 10-14 year old cars are still attractive, e.g. for taxi drivers, who have been saving money for their purchase for a long time. Used car imports sometimes are not even roadworthy according to European standards. It’s not only the very capable and creative car mechanics but also the dry climate, which are the main factors that enable a long second life for the used Eurafrican cars. Back to Europe, where a lot of cross-border trading takes place. For example, Dutch leasing companies export up to 70% of the ex lease cars. At the same time, Dutch companies import relatively recent models, preferably from Germany, that have not been sold in the Netherlands as new cars and are, therefore, not available on the Dutch used car market. This trend can be explained by the harsh tax regulations that make the purchase of bigger, slightly more powerful cars, unattractive. Consequently, even car manufacturers offer imported used cars through their authorised dealers. The leading used car importing countries, however, can be found in Central and Eastern Europe. Poland, especially, stands out as an importer, with more than 650,000 imports in 2012. As used car prices are determined by supply and demand, the strong demand from Poland has a positive effect on used car values for the models concerned. In other words: The supply of used cars, especially on the German market, is reduced due to Polish imports.

So far, so good, but the forecaster’s job does not end here. Firstly, in 2013, Polish imports are split as follows: 49.1% of the Polish imports over 10 years old, 43.8% are t 4-10 year old and the remaining 7.1% being 4 years old. For the used car market in the EU, it will be crucial to meet the future demand of the different export markets regarding the price.

Secondly, the growing wealth in Central and Eastern European countries makes new cars more popular; consequently, the growing availability of young, domestic, used cars will put the imports under pressure. Thirdly, used cars that are exported to countries outside of the EU can cause trouble. As soon as one or two countries tighten their import regulations, like we have seen happen in Russia in the past, this will also have a noticeable effect of depressing prices, as well.

To sum up, export is currently an important sales channel to reduce the used car park in Western-Europe. The uncertainties mentioned before we’ve already discussed, however, may cause a decrease in the foreign demand for these cars. This again creates a risk for the remarketing of used cars in the future. Residual value and risk managers, therefore, should not rely on the assumption that the current status will remain constant in the future but, instead, develop different and innovative scenarios to cope with this risk.

 

 

Written by Tim Lewis

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Tim Lewis

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