Something’s got to give

The age-old economic principles of supply and demand are as fundamental to modern business as Isaac Newton’s laws of motion are to physics – which makes me wonder why they don’t seem to apply to the world of business cars.

The reason I raise this is because of some fascinating research currently being undertaken by EurotaxGlass’s. Working with AutoTrader, the UK’s most visited online car sales site, the analysts at EurotaxGlass’s are trying to apply some science to the black art of accurately pricing used cars.

In order to do this, they are mapping supply (by looking at exactly what stock is available on used car forecourts) and demand (by counting the number of searches for specific cars on the site). The numbers make impressive reading: each week the analysts look at 300,000 stock records, representing around 70% of the dealer market, and each month they look at 70 million (yes, 70 million) internet searches.

Of course, this sort of exercise throws up all sorts of fascinating data (car retailers can use it to match used forecourt prices to local market conditions). But, for those of us in the business car world, I think the most important revelation is how much our activities are upsetting the delicate balance of supply and demand.

According to the figures, currently 17% of used cars on forecourts are less than a year old. But only 8% of customers want to buy them. Take that back to cars that are up to 18 months old and the figures are even worse: around 21% of the stock and only 12% of the demand.

What used car buyers actually want are three- and four-year old cars. Here supply and demand are more evenly matched. In fact, at the four-year mark, demand is outstripping supply.

Where are all these cars coming from? Well, I think we know the answer to that – short-term daily rental, courtesy car fleets and demonstrators.

Adrian Rushmore, managing editor at EurotaxGlass’s, says: “Tactical registrations and the high volume of cars sold into the national daily rental fleet market forces many used cars onto forecourts that are little more than a few months old. We predict numbers of cars under a year old will accelerate still further in the coming months”

Of course, many of these cars will have been supplied on fixed rentals or guaranteed buy-back terms – so you could argue that it’s not your problem. After all, if the carmakers are pushing cars out at highly favourable terms, why should you worry?

Well, ultimately, the concern must be that you cannot fight the economic reality of supply and demand.

If the number of nearly-new cars continues to go up and there are no customers for them, then the value of the cars must come down. That means greatly increased monthly rentals for short-term fleets.

On the other hand, carmakers could go on subsidising the short-term rentals until they reach breaking point and go bust. If you think that is unlikely, just study the effect highly subsidised consumer pricing has had on Ford and GM in the US this summer.

No, I’m not expecting you to ring up your courtesy car supplier and ask for a price increase. But I am warning you not to be surprised if he rings you early next year and wants to renegotiate terms.

Put simply, the current imbalance between supply and demand is not sustainable. Somebody, somewhere is going to have to back down very soon.