USED-CAR retailing is under strain as stock is becoming harder to source and prices are being squeezed by pressure from competitive new-car deals and owners using internet-based marketplaces.

Dedicated used-car dealers are pointing to car buyers substituting used for new and the burgeoning use of the internet for introducing new ways for private sellers to dispose of their vehicles, removing them from the used-car yard market.

The zero-interest finance environment of new-car franchises has affected used-car sales, particularly for dealers with combined new and used yards that have diverted buyer attention to new cars.

One dealer who requested anonymity said that used cars were historically strong in Western Australia compared with the east coast.

“There used to be a ratio of about 1:2 new to used, but that ratio is falling,” he said.

“It’s still about 1:1.25 but it is falling. The industry national average is 1:0.4 and in Sydney, that’s a bit higher at 1:0.6.

“Certainly private sales are eroding dealer stock and especially online sales through zero-cost media like Gumtree and even Facebook and other social media.

“It is all removing stock that used to go to the dealers.”

One of Australia’s biggest and longest-standing used-car dealers, Perth’s John Hughes, is upbeat about the industry though admits that after his 41 years in the game, today’s market is tough.

“We have been forced by the new way of buying to spend more money on digital systems to advertise and sell our cars,” he said.

“However, our prices have to remain competitive.

“When we price cars now we have to be far more cognisant of the market.

“Never before have we been forced to be so aware of what our competitors are doing.”

Industry analyst and former dealership principal Wayne Pearson said proof of the hardship of the used-car industry was reflected in the number of people in the business.

“These days there just aren’t that many large used-car dealers,” he said.

“In the old days there were a number of dealers doing 200 to 300 used cars per month, with the average being well over 100.

“Today the average dealer does 30 to 50.”

Mr Pearson said the situation differed depending on the state.

“Interestingly the used-car volumes have always been much stronger in the west coast compared to the east,” he said.

“I think it’s because it’s harder to move the residuals between states.”

Mr Hughes – who also owns a used-car outlet in Sydney – said there were differences, particularly with the ratio of new vehicles sold compared with used vehicles.

“In the eastern states, a new-car franchise has a ratio of one used in every three new sold,” he said.

“In WA we sell 8000 new cars a year and it’s one-to-one with used cars.

“We doing the same number of used cars as we did in the boom years but the gross margins are down.

“So the volume is the same but our return is less.”

Mr Hughes said the change in the used-car industry came about less than 10 years ago and was likely to be related to the growth in online sales and the way people started to search for a vehicle.

“Five or six years ago it was all about the product and the presentation – now it’s significantly about price,” Mr Hughes said.

“And that is what has reduced our margins. So to compensate we have cut back print advertising and we have slightly increased our TV and radio advertising.

“We are promoting our own website – johnhughes.com.au – very heavily.

“Our penetration of lead-to-sales is significantly higher on our own website than it is on Carsales. That would be typical of most dealers.

“Our conversion is running at about one in four. You get one in eight or nine elsewhere.”

But Mr Hughes said that despite the ease of using and operating an online retail site, “we are not in a better situation, despite reducing our costs, the margins are less”.

“I have lost more in gross than what I have saved in media exposure,” he said.

Mr Hughes said he thought many dealers did not like to deal in used cars.

“They can have warranty problems and so many dealers tend to wholesale a lot of used cars because they can’t be bothered with them,” he said.

“In my book, they’re losing a great profit opportunity. It can be a pain but it’s our strength.”

Mr Hughes employs 11 specialist buyers and believes they are vital to his business.

“There is an art in buying a used car – it’s a skill – and the guys who do it and do it well will get very well remunerated,” he said.

“It’s the old story: If you buy right you sell right.”

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WHERE THE CARS COME FROM:

Mr Hughes said the best source of used cars was the new-car trade.

He said the second best was a used-car trade, where one vehicle was traded in on another.

Then came buying a vehicle privately with the seller coming to the dealership. “We buy 60 a month here,” he said of his Perth yard.

“The next is to buy privately through the internet and the next best – and you’re getting towards the bottom of the barrel here – is to buy from other dealers,” he said.

“Then the second worse is to buy from wholesalers and the last thing you do is buy from auctions.”

By Neil Dowling