Market dynamics drive dealer demand for stock funding

Market dynamics drive dealer demand for stock funding

Liam Quegan Managing Director NextGear Capital

A growing consumer appetite for younger used vehicles, rising retail prices and the predicted growth of the used vehicle market in 2019 is driving a demand amongst dealers for stock funding sources, according to NextGear Capital.

Data released by NextGear Capital, the wholesale stock funding division of Cox Automotive, shows the average age of funded units gradually decreasing to 6.5 years year to date. Stocking newer vehicles is proving beneficial for dealers as findings show a 4.1% year-on-year increase in the sale price achieved on forecourts. Meanwhile average holding days have decreased by one to 59.

Despite a sharper increase in wholesale prices in recent months, many dealers remain buoyant of their ability to maintain margins. One in four respondents to NextGear Capital and Cox Automotive’s latest sentiment survey report margins are better now than for the same period last year, while 30% say they’ve remained the same.

This heating up of the used vehicle sector is stimulating dealer demand for funding says NextGear Capital managing director, Liam Quegan:

“There’s no doubt this is a testing time for the used vehicle sector with multiple factors aligning to create an almost unique set of circumstances. The dive in the new vehicle registrations has translated into a surge of retail buyers entering the used market. At the same time the wholesale sector is experiencing a dearth of ex-manufacturer, fleet and lease stock. This is driving competition amongst dealers as they fight to maintain a strong pace of stock turn and satisfy demand.

“For many dealers, this necessity to strike fast when the right vehicle becomes available is placing an acute pressure on cash flow and as a result we’re witnessing increasing numbers looking towards complementary funding options, including Stocking Plans, to boost their buying power. The number of units we’re funding is increasing month on month plus we’re experiencing a significant spike in the volume of credit limit extension requests.

“These are all indicators of a buoyant market with buyers wanting the ability to flex their purchasing options in order to meet the demands of the market. As we look towards 2019 and predictions of a 2.5% growth in the used vehicle sector during the first quarter alone , this pragmatic approach will be even more prevalent.”

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