AS NEW-CAR dealers work overtime to encourage buyers into their showrooms – even before the effects of COVID-19 – many can take some relief from the relative stability of used-car volumes.

Buyer demand for used cars has remained relatively buoyant for the past 24 months, when new-car sales started to slide.

Carsales reported this week that demand for used cars, which generally outsell new cars by 2.5 to 3.0:1 but are not publicly accounted for, remains strong.

Carsales said used cars listed on its website attracted 28.7 million views in February, up 16 per cent on the same month in 2019.

National vehicle auction house Manheim told GoAutoNews Premium that since the beginning of the COVID-19 crisis and personal hibernation period, demand for used cars had softened but the Australian used-car market was showing much greater resilience than that of the United States, for example.

Forbes magazine said this week that on the US market, used-car values are sliding towards the pre-GFC days of 2007 and 2008 when an excess of cars hit the auction floors. The US market is also facing and estimated four million vehicles coming back from lease that will have to be absorbed into the sluggish used-vehicle market.

Manheim Australia spokesman and head of communications for Cox Automotive Australia, Mathew McAuley, said there was less demand for used cars at auction in Australia at the moment.

“This means less competition at auction which can dampen prices,” he said.

“But we also have seen more interest in lower-value used cars as these cars are not usually a discretionary spend, as people need transport.

“This is also backed up by an increase in search volumes for cheaper used cars at Autotrader.”

One of Australia’s biggest independent dealers, John Hughes of John Hughes Group in Perth, said used-car sales have been “fairly strong” which was against early predictions.

“We have seen new-car sales fall by 85-90 per cent,” he told GoAutoNews Premium.

“We expected used-car volumes to follow that trend and we predicted a fall of around 80 per cent.

“But we have been pleasantly surprised. Used-car sales are down about 50 per cent which means we are in a much better position – all things being equal – than expected.

“As a business, we see the government’s JobSeeker program as tremendous value to the industry and a major boost to industry by keeping staff.”

Mr Hughes said that buyers were drawn to a used car simply to save money over the cost of a new car.

“Notwithstanding there are some great deals in new cars at the moment, the popularity of used cars is led by price and that has been obvious for the past two years, in line with the fall in new-car sales,” he said.

In the US, Forbes said the fall in used-car values was attributed to an excess supply of cars at auction that was exacerbated by hesitant bidders.

These bidders, it said, doubted they can resell what they buy and are instead waiting for prices to drop further.

“Besides a dearth of bidders, excess supply exists,” it said.

“Cash-strapped rental car companies and commercial fleets are de-fleeting due to reduced demand. Dealers are losing their floorplan credit lines, which has forced lenders to move their collateralised vehicles to auction,” it said.

“Off-lease volume, which is estimated at a record-high four million units this year, means that lenders have significant off-lease inventory to unload in the wholesale market.

“And given record unemployment, there are likely to be more loan defaults, which will contribute to the wholesale inventory build-up.

“Over the next few months, anxious sellers will have to accept lower values for their vehicles, but other pressures indicate this issue will continue in the fourth quarter of 2020.”

Meanwhile, a report by analysts at JPMorgan Chase & Co said the finance arms of General Motors and Ford Motor Company may face multibillion-dollar losses linked to the serious drop in used-vehicle prices.

“Prices are falling faster and steeper than JPMorgan was expecting,” lead analyst Ryan Brinkman wrote in a report last week on mid-month data from Manheim’s US auctions.

Manheim’s US used-vehicle value index plunged 11.8 percent in the first 15 days of April, a decline that will easily set a record if it holds for the full month.

“The real losers of the development are likely the captive-finance subsidiaries of auto-makers like GM and Ford, and the rental car companies,” Mr Brinkman said in his report.

If prices finish the second quarter 10 per cent lower than envisioned, he estimates losses could total $US3 billion ($A4.7b) at GM Financial and $US2.8 billion ($A4.4b) at Ford Credit.

“Vehicle prices are likely going to come under significant pressure in the coming months as rental car firms including Hertz Global Holdings and Avis Budget Group offload far more vehicles than usual to adjust to lower demand and raise capital,” Mr Brinkman said.

By Neil Dowling