Market Insight: A perfect storm for used car profits

Published by One Auto API on

Could new car retailing challenges present an opportunity to drive used car revenue? One Auto API Commercial Director Rupert Pontin takes a closer look…

It may be hard to believe for some but we are rapidly approaching the end of quarter one and this is already my third industry update of the year.

So, it’s certainly time to be spotting some 2024 industry trends.

Let’s start with new car registrations, where the headline figures appear to be encouraging – with the Society of Motor Manufacturers and Traders (SMMT) reporting that the overall new car market grew 8.2% in January.

It’s a positive update – continuing 18 straight months of rising sales and, with March just around the corner, dealers will be hopeful they can continue this upward trajectory.

But let’s not get carried away.

While this was the best January performance since 2020, the increase is still being driven entirely by the fleet market, with retail sales actually falling 15.8%. 

Whether this is linked to household budgets still being squeezed, high finance rates or a symptom of falling into a technical recession at the end of 2023, there is clearly work to be done to increase private new car sales.

What about electric vehicles?

From an EV perspective, January was officially a milestone month as it saw Britain’s millionth new electric vehicle sale. 

While that’s a landmark we should celebrate, it shouldn’t be a reason to get carried away as the SMMT figures also showed that new BEV registrations by private buyers fell by 25.1% in the same month.

Yet again, fleets are clearly doing the heavy lifting and private retail buyers seem to lack the spark needed to move to electric.

With the pressure on manufacturers to meet the 22% EV sales target under the ZEV mandate in 2024, this would certainly explain some of the significant new car discounting we have seen in recent weeks.

Take the new Honda e:Ny1 electric SUV, for example. 

This is currently available with an £8,000 deposit contribution – equivalent to a saving of more than 20% – plus a five year service plan, five year warranty and five year roadside assistance also come as part of the package.

Not to be outdone, a quick internet search shows a 2024 Vauxhall Mokka with an RRP of £38,985 currently on offer for £25,000 – a saving of almost £14,000 on a new electric car.

And, although it’s not due for sale until 2025, the new Renault 5 E-Tech Electric unveiled this week in Geneva is set to join the party with a £25,000 price tag and 250 mile range. 

Ooh la la!

Suffice it to say the competition is hotting up and, if you’re actually in the market for a new electric vehicle, there’s probably never been a better time to buy.

On the flipside, if you’re a manufacturer or a retailer, new car retailing will certainly be more challenging in 2024 – especially with the anticipated influx of Chinese EV brands later this year.

As the pace of growth in China’s new car market has slowed, this has limited profit potential for Chinese OEMs in their home territory so their attention has switched to new markets – including Europe where import tariffs are considerably lower than in the US.

And what the Chinese EV brands have in common is that they are all competitively priced with a variety of options included as standard.

Higher spec. Lower cost. A very attractive combination that could turn a lot of heads.

So what about used cars?

Well, there are definitely reasons to be cheerful when we look at this part of the market. 

Recent reports indicate that trade values have risen for the first time in nearly a year – the fourth largest February increase recorded by Cap HPI and a far cry from the tail end of 2023 when values dropped by more than 10%.

From a used car retail perspective, January delivered a strong start to the year with Auto Trader reporting a 6.1% year-on-year increase in demand on the platform

Clearly then, private buyers are showing a strong interest in used cars and, while there are likely to be a number of factors influencing this, featuring high on the list is the fact that many simply find owning a new car too expensive. 

Just last year, Auto Trader research highlighted  that new car prices had increased by a staggering 43% in just five years – with the average new car list price standing at £39,038 in early 2023.

And, while most new car purchases are funded by some form of finance package, even those monthly payments are now seemingly just too steep thanks to a perfect storm of lower residual values, increased acquisition costs and higher interest rates.

So, in the midst of the affordability storm, a buyer’s only options are to downsize at the point of changing their vehicle or look for better value in the used car market – and many are choosing the latter.

All of this aligns with what we are hearing in our networks right now about auction conversion rates improving and some dealers starting to find themselves short of used car stock once again.

At this time of year, the stock shortage should only be temporary – with things improving from the second week of March onwards as new reg plate cars depart the forecourts and a raft of fleet returns and part-exchanges are placed through the relevant remarketing channels.

That said, given that business sales have dominated new car transactions in recent times, dealers should anticipate an element of ex-fleet bias to the upcoming used car mix – potentially making it more difficult to find good quality smaller A and B segment cars.

But whatever vehicles you’re considering, the keys to success will be the ability to source stock without overpaying for it and really having a grasp on the market you are going to be selling into.

Make sure you know as much as you can about the opportunity in front of you – using all available data sources and applying your own sector experience to get a crystal clear picture of the vehicles on offer.

And don’t stop there. 

If you’re going to maximise profits with optimised pricing you need to really focus on what the local retail market looks like too. 

What are the most popular vehicles in your region? How are your competitors pricing similar vehicles? How long are they taking to sell?

With differences of 15% (and counting) in some cases between national and local pricing it can really pay to take the time to check the data carefully.

And, ultimately, this data informed approach ensures a win-win for everyone. 

You source the vehicles your customers are looking for, at prices they are looking to pay with a healthy margin built in to boost your bottom line.

Turning a perfect storm into a wave of success for used car retailers and car buyers.

Here to help
If you have any questions about how you can put yourself in the best position for used car success, take a look through our latest guide on this topic: “Maximum Profit: 13 Data Driven Strategies for Minimising Your Used Car Risk” – click here to download your copy

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