Market Insight: Navigating The Nuances of a Turbulent Market

Published by One Auto API on

As 2023 draws to a close, One Auto API Commercial Director, Rupert Pontin, underlines the benefits of keeping your eyes and minds wide open…

In our November update we described the used car market as ‘challenging’ and that still rings true today.

While we would normally expect things to quieten down at this time of year, the market appears to be under more pressure than we would typically anticipate.

New car short cycle activity increasing

For a start there are a lot more new cars around and new car discounting is on the rise. 

While attending the recent VRA Annual Seminar we heard from Auto Trader that pre-registration is up 50% year-on year and we expect that this will continue in the months ahead. 

Of specific interest here for electric vehicles are Rules of Origin (ROO) requirements which cover a number of different products, including vehicles. This legislation – agreed as part of the  EU-UK Trade Cooperation Agreement and due to come into effect on 1st January 2024 – stipulates that 45% of an electric vehicle’s value must be made up of locally sourced components.

Should the value of a vehicle’s locally sourced components fall short of this, then an import tariff of 10% will be applied. According to the Society of Motor Manufacturers and Traders (SMMT) this could be as much as a £3,400 average price hike on EU-made battery electric vehicles being sold in the UK in the New Year.  

At time of writing it appears that an eleventh-hour deal has been struck between the UK and the EU to postpone the imposition of tariffs but some manufacturers have been working hard to get affected electric vehicles registered before the end of the year. 

The agency sales model is also facing one of its biggest tests to date. 

As new car supply returns, demand dips and competition intensifies, some manufacturers are relying on attractive discounts and sales events to hit increasingly challenging sales targets.

While these discounted new cars and pre-registration may be good news for the consumer, the used car market is likely to be feeling the effects of this throughout 2024 and beyond as it decreases the pool of potential buyers of two and three year old vehicles and impacts residual values.

Wholesale Realignment Continues

In recent weeks, we have seen used car wholesale prices continue to fall with reports indicating a 4.2% drop in November, equating to an 8.4% drop in just two months and 17.6% since April 2024. 

While these figures demand attention, it’s important to note that the market is very nuanced. Within this reported drop, for example, petrol and diesel prices are still 15% higher than they were at the start of 2012 but EV prices are 20% lower than the same point.

What’s driving this realignment?

Well, numerous factors including high interest rates, cost of living pressures and the annual Christmas slow down to name a few but, fundamentally, there is a growing number of cars in the market and a lack of buyers. 

In fact, recent reports indicate some dealers have implemented buying restrictions or total buying bans in an attempt to protect cash flow amid market volatility – meaning many are effectively running with half their typical levels of stock. 

And as supply outstrips demand, prices will continue to fall. 

Used Car Retailing Opportunities

From a used car retail perspective, falling prices is also a common theme – with recent reports showing that prices fell for the third month in a row, equating to a 3.8% dip year-on year. 

However, as with wholesale pricing data, there are clear nuances for different used vehicle types and ages. For example:

  • 5+ year old vehicles are up 1.3% year-on-year
  • 10+ year old vehicles are up 6.8% year-on-year
  • Vehicles less than 5 years old are down 6% year-on-year

The biggest price drops were seen with low emission vehicles that experienced an 11.9% drop compared with November 2022, while EVs in isolation fell by a mighty 21.1%.

So it’s not a simple picture and, with disparity between trade and retail prices, there are clearly still areas to turn a profit.

The key to navigating these nuances is by being data informed.

Reports in recent days have highlighted the importance of understanding all sides of the story and getting as much information as possible about potential purchases.

Successful used car retailers will be putting a lot of thought into what they are buying and what the competition looks like. They’ll be hyper-reactive – reviewing retail pricing decisions on a daily or weekly basis and using data to keep on top of dynamic market forces.

For those that can turn stock into cash, the good news about lack of wholesale demand is that there is more choice of stock than there has been in recent times. 

This opens up more opportunities to be selective about the stock you are purchasing – rewarding canny used car retailers with added profit potential.

The Used EV Conundrum

As we move into 2024, more and more proactive used car retailers will also be working on plans to maximise used EV retailing opportunities.

The volume of new EV registrations has been increasing steadily in recent years – from 37,850 in 2019 to almost 320,000 estimated in 2023. While this growth has slowed, the volume of electric vehicles on the road is still increasing and these vehicles will soon be making their way into the used car market. 

So far in 2023 there have been 89,000 BEVs advertised via Autotrader and estimates suggest that around 125,000 more will enter the used car market in 2024.

As mentioned earlier, substantial price drops are starting to make these used EVs more attractive for buyers but lack of certainty in a number of areas has the potential to undermine real sales growth.

Near the top of the list are worries around insurance costs with reports suggesting that insurers are refusing to insure certain electric vehicles or dramatically increasing premiums

Other well-documented concerns include the inadequacy of the public charging network and, for those that have the ability to charge at home, the rapid increase in the cost of electricity in the last 18 months can put the brakes on a purchase decision.

Battery health is a significant area of concern too. Earlier this year, a report by the Green Finance Institute looked at the barriers to used-EV adoption. Of drivers who said they wouldn’t buy a used EV, 62% cited concerns around battery lifespan – making worries about battery health the single largest barrier preventing the second-hand EV market from really taking off.

So what can you do to help spark used EV sales?

As always, success will boil down to responsible retailing – doing whatever you can to build EV knowledge in your business so your teams can identify the most attractive vehicles and then sell with confidence to customers that want to switch to electric.

By arming yourself with the latest data, insights and vehicle information you can minimise the chances of vehicles being returned, reduce the likelihood of finance deals being undermined and , importantly, maximise your reputation as a leading light in used car retailing. 

Here to help

If you have any questions about how you can plot your route to 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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