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Online finance tools are becoming increasingly important for used car dealers
Used car retailing for some of the bigger players and small car specialists is doing quite well.
According to dealer profitability specialist ASE the average UK motor retailer produced a strong performance in April, reflecting the upturn in the new car market and the continued strength in used car retailing. The used car department delivered £10,000 gross profit in the month. This was a combination of increased volumes and a slight improvement in gross profit per unit.
These dealers are increasingly using their websites and digital tools to boost their stock turnover. The latest figures from Auto Trader for May show those cars that are shifting fastest off forecourts. This month diesel took just two of the top 10 fastest-selling cars.
The Nissan Micra petrol was the fastest-selling car of them all, shifting off forecourts in just 17 days, followed by the Mercedes-Benz GLA also on 17 days, the Ford EcoSport and Skoda Octavia (18 days) and the Skoda Yeti (19 days). The five remaining cars in the top 10 line-up were the Vauxhall Insignia, Fiat 500X, Mercedes-Benz A Class, Volkswagen Scirocco and the Vauxhall Corsa.
Used cars have been buoyant for the large dealer groups and supermarkets, putting pressure on the smaller non-specialist operators who cannot compete on scale
One supermarket, The Trade Centre Wales, which also operates outlets in the West Midlands under The Trade Centre UK, generated pre-tax profits up 54% to £15.2m on turnover up 68.8% to £178.4m in the year to November 2017. The figures include a seven-month contribution from
The Trade Centre UK outlet in Wednesbury which opened in 2017.
This year, the group will also benefit from a fifth store, opened this month in Coventry by the Ricoh Arena. The group, privately owned by entrepreneur Mark Bailey, plans to open another new store in December this year.
When the market is strong, used car supermarkets thrive. In a weaker market franchised dealers have to deal with a declining new car market with margins under pressure. Franchised dealer group Caffyns grappled with a “very challenging” market in the year to 31 March 2018 with underlying pre-tax profits down 32% to £1.4m on turnover up 0.5% to £213.7m.
Like-for-like used cars were flat but the group did see an improvement in unit used car margins.
Over the last four years Caffyns has recorded 34% like-for-like growth in the number of used cars sold. Caffyns Motorstore, its used car business in Ashford, continued to expand with “significant increases” in sales volumes and levels of profitability.
Another franchised dealer group Hendy Group also sounded a positive note for used cars. Hendy is set to expand its used vehicle business with the acquisition of the Unbeatablecar Portsmouth outlet for an undisclosed sum. Hendy already operates Ford, Honda, Kia and commercial vehicle businesses in the city.
The new site will be rebranded and open for business as Hendy Car and Van Store on 1 July. Hendy has been expanding its used business. It already has a Car and Van Store in Exeter and is due to open one in Ferndown, Dorset. It is rated 28 in the Motor Trader Top 200 dealer groups with estimated annual turnover of £514.4m.
As we have seen, Auto Trader chronicles the fastest-selling cars each month. And it also reveals the most searched for brands and models. There are few surprises here, with German brands topping the ranks in the shape of BMW, Audi and Mercedes-Benz. Volkswagen is in fourth slot followed by the new car market leader Ford, premium brand Land Rover, the UK’s number three in new car sales Vauxhall and two Japanese brands, Toyota and Nissan. Porsche is in tenth position.
One important trend, regardless of dealer size or whether they are independent or franchise, is the growing importance of finance search tools to provide consumers with monthly totals to finance their car.
Auto Trader is seeing big demand for its new finance offer, which it launched last year. This now offers monthly payment prices to two-thirds of car stock listed, making it easier for consumers to shop for their next car.
This growth is reflected in the latest Finance & Leasing Association (FLA) figures which show that in the 12 months to April the value of used cars sold on dealer finance rose 14% to £16.3bn.
Consumers are buying more cars on PCPs, looking at how much they can pay a month rather than the total cost of the car. PCPs now take over 80% of new car sales and used car sales are catching up. Used cars sold on PCPs accounted for 49% of used car finance sold compared to 45% share in 2016. Hire Purchase saw its share of the used car finance market decline from 50% in 2016 to 47% share in 2017.
The future for car finance also looks positive. New research from software firm FICO, which surveyed 2,000 consumers in nine countries on new and used car finance, predicts a surge in demand for new and used car finance.
It found that just 15% of UK consumers applied for their last car loan online but 48% plan to do so next time, which sounds a little high. Half (50%) of UK consumers only considered one lender before making their final loan selection. UK consumers experienced the shortest loan application wait time globally, with 63% of buyers waiting less than 30 minutes.
Consumers in the UK were also less likely to consider multiple lenders than those in Spain and Germany: 67% of Spanish and 54% of German consumers considered two or more loan offers before making a final decision. In the UK, 50% of borrowers considered just one lender.
If there is any takeaway from the above it has to be the importance for dealers to get their finance offer right. Usage, not ownership, is the new mantra for millions of car buyers. Good online finance tech makes it easier to buy things. Any finance offer from a used car dealer needs to take that on board.