Market Report: Used cars September 2018

It is 10 years since the financial crisis which initially, caused used car values to decline before making a strong recovery. In fact we have seen a bull run in the used market over the past seven years and dealers have benefited as a result.

The latest data from the Auto Trader Retail Price Index, shows how the average price of a used car has grown from £8,997 in 2011, to £12,731 in 2018, a 42% hike.

In contrast, the average price of a new car has grown just 19% over the same period, with the average price increasing from £21,911 to £26,105. The hike in used values owns much to the availability of compelling finance deals. Car finance accounted for 88% of all new cars bought in the UK, compared to circa 50% of sales a decade previously.

With the average two to three-year ownership cycle of a Personal Contract Plan (PCP), there has been a surge in younger, more advanced and valuable, used cars entering the market. According to Auto Trader data, over the past five years, sales of used cars aged less than three years old have increased by 32%, whilst sales of five-year-old and ten year-old-cars have dropped by 3% and 7% respectively.

Auto Trader argues that whilst finance currently accounts for 40% of the used car market, the growing desirability for more modern and more valuable used cars will be a key factor in driving the number of used vehicles bought on finance, which helps to make these cars more affordable and therefore more accessible to a wider audience. This presents retailers with an opportunity to offset declining new car sales.

Ian Plummer, Auto Trader director, said: “At a time when new car sales are struggling, these figures represent a very real potential for finance to fuel continued growth in the used car market. The conditions are right and as average prices increase, we’ll see more consumers opt for finance as the best way to access their next car.

“However, with consumers telling us time and time again, that they’re put off by complex language and process, there is a risk many retailers will miss out. Unlocking growth in a market that is more than three times the size of new car will be dependent on making the financing of used cars more competitive, transparent, accessible and easier to understand.”

There’s definitely a consensus that with the new car market under pressure, dealers have the opportunity to make greater inroads in used cars. The large dealer groups have already made serious moves to grow their market share. The most notable move was Sytner with the purchase of Car Shop supermarket business. While Pendragon is pushing hard with the roll of its 40 Car Stores. Finance is playing a critically important part for used PCPs. At Marshall Motors, for example, PCPs account for 83% of its new car sales and 58% of used car business.

According to Startline Motor Finance increased economic uncertainty is likely to mean that dealers shift their emphasis even further towards used cars in 2019. Its dealer customers are investing in their used car business to compensate for falling new car business.

“Certainly, it is no secret that dealers are investing in new vehicle sites and facilities but we are also seeing attention being given to approved used schemes, too. The actions being taken range from major investments to on-the-ground rethinks about how to maximise used car sales and meet the changing needs of customers,” said Startline CEO Paul Burgess.

“Instead, we’re expecting larger numbers of buyers to move into the used car sector, especially at the newer end of the market, with 1-3 year old vehicles serving as value-for-money, lower risk alternative to a new car.”

So what sort of cars are selling fast? We can get some idea of market trends by looking at the fastest selling cars on Auto Trader in September. While new car diesel sales were in freefall (down -43% in September) in the used sector diesel is much in demand. Nine of the Top 10 fastest selling cars in September were diesel. The fastest selling car as the Mercedes-Benz GLA, which shifted off forecourts in 15 days.

Auto Trader also looked at the most searched for brands on its website and here, as you might expect with the advent of PCPs and clever finance deals, consumers are looking at premium metal from BMW, Audi and Mercedes-Benz. That is not to overstate the case, however. The new car market leader Ford is a huge player in the used sector, as is Vauxhall. The other brands to make it in the Top 10 are Land Rover, Porsche and Toyota and Nissan.

So where now for the used car market moving towards 2019. According to Karl Davis managing director of Coachworks Consulting, the most successful small to medium sized franchised dealers are those who always value the importance of their used car businesses, not just when the new car market is down.

“The top performers are those with people and processes in place to sweat their used car forecourts. This is why it is critical to source the right vehicles, price them keenly and make sure all sales staff have a detailed knowledge of what’s in stock and what’s in the pipeline,” he said.

There is one caveat. According to the Vehicle Remarketing Association (VRA) demand for good quality cars at auciton is causing prices to rise to such an extent that it is difficult to make a profit on the forecourt. Trade prices are very close to retail. The solution is for dealers to make their money from finance deals instead, it said.