IMI Magazine

IMI Magazine

Guides versus gut feeling

Used car valuations

Guides versus gut feeling

To the consumer they're confusing and can lead to unrealistic expectations. To the trade they're just one of the ingredients of a black art. John Kendall looks at the business of used car guides.

Pricing a used car isn't rocket science, but it is a bit of a black art which strikes at the heart of customer sensitivity. Getting it wrong can be costly, while getting it right delivers happy customers and a sensible margin. Even so, the price on the page usually differs from the price on the windscreen. Does that mean that the guides are getting it wrong?

We asked Mike Hind, communications manager at CAP Network, what is the relationship between CAP prices and forecourt prices? "None" was his reply, "CAP is about trade not forecourt prices", he said. "The Black Book provides suggested retail prices, but its primary purpose is to provide a benchmark trade value."

That view is echoed by Adrian Rushmore, managing editor at Eurotax Glass's, "The way we work is that a lot of effort goes into trade first, then building in a margin," said. "The relationship between the sticker price and what the dealer gets is how much the customer can twist the dealer's arm."

It may sound obvious, but there's also an issue of custom and practice. "Trade figures are what dealers look at, not retail," says Rushmore, drawing a comparison with the motorbike and caravan markets. "The bike market tends to be based on retail prices and it's the same for caravans. It's a question of how vehicles are bought." As he explained: "In the UK, there's huge wholesale trade activity in used cars. The auction houses started it and have had a big UK presence since the last war. Compare that with the caravan and motorcycle industry, where there's a lower level of trade activity. Bikes and caravans are bought direct from the general public." This pattern, says Rushmore, is similar to the car trade in mainland Europe, where there's a smaller company car market and dealers won't part-exchange.

Obviously, getting used values right is essential for Glass's and CAP and both guides use similar methods to ensure their pricing is as reliable as possible. "Our values are drawn from comprehensive monitoring in three areas - open market values, those at auction, fleet disposals and closed market values," says Mike Hind at CAP. It's no good looking at, say, a Vectra at auction and taking an average price in a day. We're looking at monitoring prices on the ground through teams of editors. One will look after manufacturers, another will be looking after contract hire, leasing, going to auctions etc, and then there's a team of field researchers checking prices against catalogues."

For Glass's, Adrian Rushmore says: "We're compiling information in two ways; from data collected and the prices that used cars have achieved. We gather our market intelligence from editors talking to the trade about what's selling and what's not. Then we collect information from auctions, rental, contract hire and leasing and manufacturers as the main sources of trade information and we're also talking to dealers. On the other side, we collect retail asking price information, so our values are based on hard data. The safety check is when we produce the price. Are dealers asking what we cast?"

"It's not enough to talk to the trade and talk to auction houses, says Mike Hinds. "We have various other measures to monitor and chart finance deals, and retail activity - how many people are buying cars and what they will pay. Our processes must cut through face values, we can't afford not to. A disposals manager may want to see the CAP clean value reduce because his bonus is based on it, so we must have processes that are demonstrably robust."

All well and good, but the guides can't hope to cover every last model and every shift in the market. What about regional price variations, for instance? "Regional variations can be quite ephemeral", says Mike Hinds. "Take a load of cars bought in the midlands then sold in the south with a £300-£400 mark up. As soon as the trade realises what's going on, they all jump on the bandwagon and the price comes down. If we reflected variations like that, we would skew the market."

Glass's differs from CAP in producing consumer values as well as the trade guide. "We provide consumers with three part-exchange values then a typical dealer asking price," says Adrian Rushmore. "There's no conflict with the trade guide, although the trade was a bit concerned when we started because some consumer listings are quite misleading. We research our values, which is not so of many listings."

So how do the guides work from a dealer's perspective? "You use gut feeling, you get to know what things are worth, plus we use CAP plus Glass's. In our own franchise, we price within £100 of the right price," says Chris Green, managing director of Sky Ford at Watford and Hemel Hempstead. "If it's a specialist car, we seek specialist advice. If age or mileage is outside what we normally deal with, we will trade it, but even so, you must have an idea of the right price."

Green is wary of relying too heavily on the guides. "You do not get the trade to underwrite your business. A dealership that allows the trade to dictate prices dictates your business. If you are honest and use an appraisal form to go round the car and point out dings and dents, pricing is quite painless. It's so important to get the right price and we never price a car without seeing it. There's such a variance between Glass's and CAP that we only allow a manager to give a price," Green added.

One dealer specialising in ex-lease vehicles who did not wish to be named, said: "If you looked at all the guides - those available to the consumer and those exclusive to the trade - and were not familiar with the business, you'd end up totally confused. They are what they say, a 'guide', but people tend to pick the bits which look most favourable to them and come up with an unrealistically high view of what their vehicle's worth as a trade-in and think you're trying to rip them off on the vehicle they're looking to buy."

In his view, the most realistic guide was Motor Trader. "We look at the prices, average them out and make a few adjustments based on our own knowledge of John Livingstone, managing director of Glasgow Seat dealer W Livingstone, broadly agrees with Chris Green. "We use Glass's Guide. The CAP price is an average, so it doesn't really tell a dealer in Glasgow or London what he will get." But he doesn't take the guide price at face value. "For other makes, we will look at the guide and speak to a trade under-writer, who will usually know what a model will fetch relative to the guide." But like Chris Green, John Livingstone believes that guide prices are no substitute for day-to-day, first-hand experience.