The used vehicle market in the UK promises to be the automotive industry’s sales growth engine next year as demand for vehicles and finance grows, according to industry experts.
While the new car market is enduring what experts are calling “a perfect storm” of challenges, ranging from the sales impact of the new WLTP emissions tests to economic uncertainty and negative messages surrounding diesel, the outlook for the used car market is positive, particularly as finance penetration grows.
Delegates at the Vehicle Remarketing Association’s ‘Challenges of 2019’ seminar heard that while consumer finance for new cars has reached 90% penetration, it is nearer 50% for the used car market, but demand is rising.
The size of the potential used car finance market could dwarf the new car sector; the annual used vehicle market is four times the size of the new car market, meaning finance levels in the two sectors are already nearing parity, despite lower levels of used car finance penetration.
According to the Finance and Leasing Association, the value of finance advanced to consumers for new cars for the year to the end of September 2018 was £19.3 billion, a rise of 2%. Growth was limited because the number of new cars financed fell 5% to 963,771, so the rise was driven by vehicle price inflation.
By contrast, the used car market saw 14% growth in the amount of finance agreed to £17.2 billion, which funded nearly 1.5 million cars, a rise of 8%.
Delegates heard from Philip Nothard, customer insight and strategy director – cars, at Cox Automotive, and Grant Thornton’s Owen Edwards, that expected vehicle sales growth will be more than 2% in Q1 next year, compared to the same time last year, despite a variety of disruptive challenges, including the outcome of Brexit negotiations and uncertainty over the subsequent approval of any deal by UK and EU legislators.
The challenge facing dealers in the next year will be finding the right used vehicles to match potential demand, delegates were told.
An increasing proportion of car buyers are opting for premium brands, which now account for a quarter of the new car market, delegates heard.
Mike Allen, head of research for Zeus Capital, said: “With such uncertainty in the new car market, we expect a robust outcome in the used car market. There is a lot of competition around stock, so for dealers to deliver growth, they have to play the market.”
This view was echoed by BCA’s Stuart Pearson, who pointed to record prices being achieved in the company’s remarketing channels.
Buyers are increasingly competing on a national basis as they turn to online channels for vehicle sourcing, with BCA reporting that one-third of its one million annual vehicles sales are now through digital channels.
For sellers, including finance companies that take residual value risk, such as leasing providers, the ongoing challenge will be extracting the maximum value from each vehicle at sale time.
To assist, BCA is using analysis of historic and live pricing data to power a ‘value optimisation’ service, which will automatically identify the vehicles that benefit most from refurbishment according to the expected residual value uplift.
The potential benefits of effective refurbishment policies are also backed by Aston Barclay, which says that growing demand for used cars should encourage more vendors to consider refurbishing stock to increase their disposal profits.
Aston Barclay has reviewed the condition grades of thousands of used cars it sold in September and October.
Its remarketing experts say that by investing £185 in refurbishment, an example car could receive a £264 uplift in price.
Refurbishment has been a key talking point in the industry as leasing suppliers have been forced to extend contracts due to some OEM’s new car orders being affected by the introduction of WLTP.
This has restricted used car volumes coming into the market, particularly in the fleet, PCP and PCH sectors.
High demand has seen stocking days of late and low and ex-fleet used cars reduce by up to four days, while prices have increased amid fierce competition for the cars that are made available.
Speaking separately to the VRA event, Martin Potter, Aston Barclay’s group operations director, said: “From analysing our data it’s clear vendors need to consider refurbishment more seriously. It isn’t relevant to every make and model, but in this buoyant used market it is worth sitting down with your remarketing partner and doing the sums to identify the end of contract and part exchange cars where extra disposal profits are available.”
Development of new and used consumer car finance demand, UK - 2010 - 2018
Source: FLA Data
