BLOG Used cars will continue to offer ‘very strong’ profit opportunities

The slight uptick in retail sales last month is not a sign that the new car supply issues are beginning to ease.

Most November’s registrations will have been pre-ordered months ago. The global shortage of semi-conductors is still being keenly felt at the forecourts, holding back sales to a level well below the very strong underlying demand we continue to see.

This is not only reflected in the 123% year-on-year increase in new car enquiries sent to retailers on Auto Trader last month, but also the fact that many manufacturers and retailers are reporting record pre-orders. Remarkably, some have already exceeded their Q1 allocation of production.

With the market unable to meet demand, many would be new car buyers are turning to ‘nearly new’ alternatives, those aged below 12 months old.

However, because of the 1.5 million ‘lost’ new car sales since the start of the pandemic, they remain in very short supply, and as such, prices are rocketing.

So much so, more than a quarter of those currently available are more expensive than their brand-new equivalents.

It highlights the very strong used car profit opportunities currently available for retailers.

Longer term, there’s no sign that these unique market dynamics – very high consumer demand and low supply – will ease anytime soon.

Supply in new cars will remain for at least the first half of 2022, and with the economy set to grow at quite a pace again next year, we can expect very strong consumer demand to continue.

Electric vehicles (EV) have proven again to be a bright spot. Fuel anxiety, greater environmental awareness, and the ‘cool factor’ are all helping to drive sales, albeit on a relative scale. However, it’s important we put this growth into context – the progress is positive, but we’re behind the required pace to reach the Government’s 2030 targets.

With new EVs costing over a third more to buy than a petrol or diesel, the ‘green premium’ means current growth is being fuelled by only the most affluent. There are evident limits to the number of car buyers who can afford today’s EVs.

Unless the Government significantly changes its approach to financial incentives – three times smaller than those available in Europe – to make EVs affordable for the average household, its green ambitions will run out of charge long before 2030.

Ian Plummer is commercial director at Auto Trader