Used Car Market Trends: October 2018

It has been a busy year in an increasingly polarised used car market with top independents and big dealer groups building market share at the expense of smaller rivals who are struggling to compete.

Franchised dealer groups have been turning to used cars as the new car market went into reverse and this is showing in their financials. Lookers, for example, turned in a solid used car performance in the nine months to September. Used cars values remained stable over this period and made a 27% gross profit contribution, with a 10% rise in used car turnover and a 10% increase in gross per unit profit from used vehicles.

Vertu Motors is another group that performed strongly in used cars. Its first half performance saw like-for-like used retail volumes rise 5.8%. And Pendragon continues to invest heavily in its used car business with the creation of four industrial used car preparation and refurbishment centres. While this has dented short term profitability longer term it believes it will reap its own rewards.

Three years ago it announced that it planned to double its used car revenues by 2021 adding 40 stores to the business using existing and new sites.  The company has opened two used car processing refurbishment centres and plans two more, giving it capacity to process 80,000 vehicles a year

A strong sales performance in used cars depends on sourcing the right stock and selling them quickly to deliver faster stock turn. So, what is selling fast? We know that when it comes to the most searched for brands and models on Auto Trader German and premium brands feature strongly along with volume brands.

When it comes to the fastest selling cars, diesel dominates. Of the top 10 cars in the Auto Trader listing for October diesel takes the top nine places. The only petrol listed is in 10th place, a Peugeot 207 selling in 21 days. Four diesel cars sold in 19 days, the Hyundai Tucson, Kia Sorento, Hyundai i800 and the Renault Kadjar. Another four diesel cars took 20 days to sell, the Mazda CX5, Mercedes-Benz GLC for 2015 and 2016 and the Hyundai i30. The Audi Q5 took 21 days to sell. These are fairly young cars and there is anecdotal evidence that older diesels on the forecourt and at auction are struggling to shift.

This high demand for younger cars is causing values to rise. Glass’s is forecasting a firming of diesel values as demand exceeds supply in the used car market. The performance for younger cars is in marked contrast to the new car market which has been hit hard over the past year with plummeting registrations. Demand for good quality cars is likely to remain strong as fewer diesel cars enter the used car market a year or two down the line.

Independent dealers

It is not just franchised dealers that are doing well. The large independent supermarkets are also increasing market share. The latest Top 50 Independent Dealers Survey in this issue of Motor Trader sponsored by Auto Trader shows just how well the big independent used car dealers are doing.

On almost every indicator the used car market has outperformed the previous year. The MT Top 50 turnover increased 16.1% to £5.1bn and the pre-tax profits saw a 17.7% increase. They have an estimated 4.7% unit share of the 2017 used car market. The average pre-tax profit margin rose from 2.9% to 3.2% last time. The average used car sales per outlet his risen to 3,473 from 3,395 last time but average stock turn has decreased to 7.3 from 7.7.

According to dealer profitability specialist ASE, dealers are expected to put a fresh emphasis on used cars for the remainder of the year as the new car market comes under pressure. It said dealers had to compensate for falling new car profits and used cars was the first point of call

So what precisely is in store for the used car market for the remainder of the year? Dealer saw new car sales down a fifth in the September plate change and while this impacted immediate profitability it will have a positive impact on the used car market with fewer self-registered cars in the market. According to ASE, there was a 35% drop in the number of last-day registrations in September and this has resulted in a lower than traditional increase in retailer stock in a plate-change month. Vertu concurs with this.

“We are certainly seeing fewer pre-registrations in the marketplace. At the end of September two years ago we had 1,200 pre-registered cars, we are now down at 700. That is a market thing and is currency related. The issue in used cars is going to be lack of stock. I think we will see strong margins,” said Vertu CEO Robert Forrester.

Motor Trader. Trevor Finn. CEO Pendragon at Evans Halshaw car supermarket Birmingham 200116
David Berman for Metropolis Business Publishing.
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It is worth repeating that if the top independent dealers are doing well and the big dealer groups are also performing strongly, then somebody is being squeezed and they are the smaller operators who cannot compete on price and scale. Pendragon CEO Trevor Finn said the market is not getting more competitive, it is simply changing.

“The competition is changing by the day, I would not say it is getting more competitive. All it’s doing is changing. The smaller independents are the ones who are losing volume to the larger players, which would include ourselves. If you look the MT Top 50 independent Dealers the larger players are growing,” said Finn.