Are newly-purchased cars being re-sold?

RECENTLY some media have written about an increasing number of newly-purchased cars being sold to used-car bazaars, indicating that some purchasers using the car-scrapping bonus may have misjudged their financial situation and are now unable to pay instalments on their new vehicles. But neither used-car bazaars nor leasing companies are confirming such a trend.

“We have reported a small increase in these newly-purchased cars, but these account for only a few percentage points of the whole volume of cars purchased [by the bazaar],” Erika Hettešová, PR coordinator for AAA Auto bazaar, one of the biggest used-car dealers in Slovakia, told The Slovak Spectator. “But even in these cases it is impossible to confirm that these are cars bought within the scrapping scheme.”

Darex, another large used-car dealer in Slovakia has not registered such a trend either.

“Maybe we had two or three such calls,” Petr Plevač, spokesperson of Darex, told The Slovak Spectator. “But it is also quite early for such a development. When we consider when the scrapping waves and delivery of new cars took place, it means that a buyer has had such a car for only one to two months. After such a short period of time they may have not yet realised that they are unable to cover their instalments. This realisation may arrive only after three to four months.”

Leasing companies not worried

Leasing companies clustered in the Association of Leasing Companies of Slovakia (ALS) are also not registering a trend that buyers who got a car-scrapping bonus are unable to make their payments to leasing companies.

“But only a few months have elapsed since cars were obtained via the bonus scheme and financed via leasing companies and that is too little time for assessment of a potential delinquency by clients,” Marián Horváth, the head of the committee for statistics and media at ALS, told The Slovak Spectator.

According to Horváth, private individuals are the customers who primarily used the car-scrapping scheme and they are more reliable than businesses.

“From the viewpoint of leasing companies, and particularly during a financial crisis, these private individuals are more reliable debtors than business entities and they pay on time,” Horváth said.

Crisis lowers used-car sales and prices

In general, used-car bazaars report lower sales than last year, when the impact of the economic crisis was not as visible.

“In spite of this we are reporting a revival in sales since the end of the first quarter,” said Hettešová. “Even during the summer, which is traditionally a weaker sales season, our sales are maintaining a very good level.”

According to Plevač, the sales at Darex for the first half of 2009 are actually incomparable with earlier periods because before the downturn the previous economic boom had inordinately pushed sales up.

“Of course, the crisis hit the automotive sector very significantly and the car-scrapping bonus has not helped us,” said Plevač. “New car sellers had minimum margins and we had to respond to this because prices of used cars are always unfolding from the prices of new cars. Thus, we had to reduce prices and we often found ourselves in a situation where we were selling a car without profit or even with a loss.”

On the other hand, used-car dealers benefited from the car-scrapping bonus when they launched their own bonus schemes. AAA Auto launched its alternative bonus programme only two days after the launch of the state-supported car-scrapping scheme, which almost tripled the volume of cars sold by AAA Auto.

“The car-scrapping bonus helped us push up our sales,” said Hettešová. “Thanks to this marketing-trade initiative we have sold about 800 cars in Slovakia already.”

The state-supported car-scrapping bonus brought this issue into media attention and propelled the interest of people in buying used as well as new cars.

But the car-scrapping bonus frenzy accumulated car sales into just a few months since “clients are not falling from the sky”, said Plevač.

“Logically, we sold more cars when there was the scrapping bonus and then the sales were weaker,” Plevač said. “But during the last three or four weeks we are reporting a gradual revival in the market after the attenuation following the scrapping bonus waves. Thus we hope that with the start of the new fall season after the end of the holidays that sales will increase until the end of the year.”

AAA Auto has also reported a renewal in the demand for used cars but it remains very cautious and assumes that the total number of used cars sold by AAA Auto this year will be lower than in 2008.

“On the other hand, the current economic situation may play into the hands of the used-car market,” said Hettešová of AAA Auto. Many private individuals as well as legal entities may choose a used car and save 10 to 30 percent, compared with the price of a new car, she said.

The economic downturn has also changed the tastes of potential buyers of used cars.

“Currently they are interested in smaller, economical and cheaper cars,” said Hettešová of AAA Auto. “The car’s condition and a clear origin of the car also play an important role. This is why our clients are particularly interested in cars we bought directly in Slovakia. Traditionally, the Škoda Fabia and Škoda Octavia are the most popular models, followed by the Peugeot 206 and 207 or the Ford Focus and the bigger Ford Mondeo.”

Plevač of Darex confirms that buyers have returned to less expensive cars.

“During the last three or four years the purchase price of used cars increased and reached somewhere around €10,000 to €11,600,” said Plevač. “But immediately after the crisis hit, it started to decrease and currently customers are most interested in cars costing up to €6,640.”

According to Plevač, people simply do not want to invest so much in a car and they have become very price-sensitive. They are either afraid of the future or want to save money and they prefer a less-expensive car. Because the price mirrors the category, the condition and the features of the car, buyers usually want something newer, even if it is of a lower class, so that they will not need to invest a lot in maintenance.