28 LEARN MORE The nearly-new and second-hand car market in Brazil By Valdner Papa, consultant in the automotive segment 2009 2010 New Second-hand New Second-hand Automobiles 2,479,457 6,013,629 2,651,752 7,201,617 Light commercials 530,025 991,231 677,418 1,227,692 Total 3,009,482 7,004,860 6,329,170 8,429,309 2011 ABLA YEARBOOK The nearly-new and second-hand car market in Brazil has continued its momentum. The replacement timeframe indicates that the second-hand car market started growing in 2010 and it will extend up to 2015, with rates of growth similar to those in the new car market in 2005 and 2010. It is important to remember that the new car market was boosted by generous finance terms, reduced taxes, longer payment periods, and lower down-payments, all in an environment of income and employment growth. That scenario has allowed the migration of many second- hand car buyers to new cars, which posed a lot of problems for the second-hand market between 2006 and 2010. As a result, while the new car market was growing rapidly, the second-hand car market was slowing down. With the end of tax breaks and prices differences returning to their traditional levels, what we see now is a reverse shift. Now, the challenge is not related to the volume and availability of products to be sold, but rather the existence of financial tools that make it easier to sell second-hand cars. The nearlynew and second-hand car segment relies fully on financing, with special features such as long payment terms and low downpayments, as its buyer look at the amount to be paid monthly, which has to fit their family budget. Until 2010, adequate financing was available. However, the prudential measures taken at the end of that year sought to reduce the volume of credit for long payment terms and low down-payments. In practice, this is the major limiting factor on further development of the second-hand car market, mainly because these measures are directly linked to the process to control the inflation which Brazil is currently experiencing. But there is one key fact: the commercial margins used for second-hand cars have consistently remained between 10% and 11%. In this context, what can we expect from the nearly-new and second-hand car market? A significant sales volume (see table) and an even greater incentive to the existing volume potential, if the availability of finance gets back to normal. Margins will remain at current levels, because prices have remained at 2008 levels, when they fell by a 32% in real terms. In fact, real prices have never recovered, so ensuring a price level which enables a comfortable margin. The secret, as usual, will be in inventory turnover, as it is the determining factor, together with volume and the margin for the final real result. Turnover, in turn, is directly connected to having the correct cars in stock, that is, the vehicles that clients want, which the market ranks as highly liquid.
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