Dealers invest heavily in the used car market despite tough times

In the first of a series of articles with Motors.co.uk, we look at the fastest selling cars across the UK and by region.

Dealers have been going through tough times in recent months. The decline in the new car market is well chronicled. UK new car registrations fell for a fourth consecutive month in June, down -4.9% to 223,421 units. Sales of diesel cars fell for the 27th month in a row down -20.5% while petrol and battery electric registrations rose 3% and 61.7% respectively, according to figures from the SMMT.

Used cars, until recently, was a buoyant market. Over the past few years franchised dealers have piled into used cars, a channel that offered a better return on investment than selling new. Pendragon set up its chain of Car Stores, Sytner bought Car Shop and Arnold Clark sales surged. In Scotland Peter Vardy also pushed into supermarkets.

It is not just franchised dealers who are pushing hard. Independent operator Big Motoring World is to open a new 750-car site in Stratford, East London, in September. This follows the supermarket’s expansion in 2018 with a 20 acre site in Bluebell Hill Kent and Car Supermarket in West Malling Kent. This forms a part of the company’s expansion ambitions in 2019 and 2020, with two more 1,000 vehicle car supermarkets planned in undisclosed locations.

But while the investment goes on, the market has shifted with used car values under pressure compared to a year ago. This is reflected in the performance of the major dealer groups who are reporting pressure on margins as values fall.

Lookers, the UK’s third largest dealer group, warned that its first half profits look set to take a -25% hit as the new and used car sectors slowed in the second quarter. It said demand is weaker and the resulting margin pressure in the used car market has significantly increased, notably during the month of June. Pendragon recently issued a profits warning, saying its Car Store used car arm was holding too much stock and expected to turn in huge in this year.

But there is still room for growth. According to Peter Vardy, the return on investment in used cars is superior to that delivered by some franchises.

“If you look at some of the opportunities for volume brands I have looked at recently, I have done the maths. Although a car supermarket is about £8.5m to build and £4m of stock, the maths are still better as a return than most of the volume franchise opportunities I have been shown. It really is return on investment,” he said.

Whether you are an independent or a franchised dealer, stock turn is critically important. Using Motors.co.uk data, we reveal the top 20 fastest selling used cars across the UK, with the Peugeot 207 and Mercedes-Benz GLA, Citroen C4 Grand Picasso, Vauxhall  Zafira and Hyundai Santa FE topping the charts. Notable, is the inclusion of the Nissan Leaf in the Top 10 fastest sellers. There is also a regional breakdown with details of the Top 10 fastest selling cars in England, Scotland, Wales and Northern Ireland.

We looked at the most searched for cars across the UK. The Ford Fiesta is the most searched for car, followed by the Volkswagen Golf, Ford Focus, Vauxhall Corsa and BMW 1 Series.  And we also looked at the most searched for diesel cars. Here the Ford Focus tops the rankings, followed by the Volkswagen Golf, BMW 3 Series, Audi A3 and Ford Fiesta.

The Motors.co.uk data reveals that diesel accounts for 34% of search on the online platform, compared to petrol for 54% and 10% for AFVs. It’s true, search for diesel has been falling in recent years but it still has a loyal following in the used car market, which is much bigger than the new sector, is inherently more stable and takes longer for trends to get established.

According to Glass’s, despite negative headlines following Dieselgate and health and environmental scares, used diesel values have held up well. In the used car market, diesel vehicles are popular because they offer drivers excellent fuel economy and good value for money.

That said, the market is beginning to turn. Diesel used cars fall 9.8% in value in the second quarter according to the latest data from online remarketing firm Autorola. It said prices of used diesels, petrols, hybrid and electric cars all fell during Q2. An increase in part exchanges from the new 19-plate in March and the general apathy surrounding Brexit helped contribute to the price fall of used cars sold via its portal, it said.

But back to franchised dealers, who have pushed hard into the used car market. According to Coachworks Consulting, they still have a trick or two to learn from supermarkets.

Coachworks carried out research, which found that franchised dealers are losing used car sales by not promoting the monthly payment cost more prominently on their websites. It found that 40% of the UK’s largest 100 franchised dealer groups were not using this pricing method. This has caused them to lose ground to car supermarkets, who were early adopters of monthly payment promotions. We pay monthly for mobile phones and utilities, so why not used cars?