Squeezing profit from their vehicles while remaining price competitive is a continuing headache for dealers who are paying more for the most popular stock – small and mid-size cars – and the picture is unlikely to get much better this year, analysts say.

The headline figure of a 1.1% rise in the prices paid by dealers, making it the strongest February in eight years, suggests a very healthy market but cap hpi says the underlying situation is a bit tougher for dealers.

It says trade buyers looking for stock to put in their showrooms favoured the cheaper end of the market, with a price ceiling around £10,000, at the expense of big-ticket premium and specialist cars. City cars had the biggest jump, up 3.3%, superminis rose 1.8% and lower medium by 1.2 at the 36 months/60,000 mile point.

The contrast with more expensive cars could not be more stark. Of all the various market segments, only five recorded a drop in values; large executives fell 1.4%, executives 0.1, luxury execs 0.6, sports cars by 0.8% and supercars by 0.9.

Many retailers are reporting margin compression

Jeremy Yea, senior valuations editor at cap hpi, said:

“Vehicles in the small to medium-sized sectors remain very desirable, and highly sought after at the right age and price points of sub £10,000-£12,000.”

But he added:

“With the continuation of high retail demand, the biggest challenges that most retailers currently face are not just replenishing sold stock levels but also trying to retain workable profit margins whilst remaining price competitive.

“With current trade demand outstripping supply along with continued strengthening of pricing throughout the month, this has only compounded this issue further. Many retailers are reporting that margin compression is still one of their biggest concerns this year especially if retail advertised pricing is not increasing in line with current trade and wholesale pricing.”

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