Stock uncertainty will persist in the short-term, and players in the used car market must act with caution amid promising forecasts, Cox Automotive has warned.

Despite 54% of dealers feeling confident that used car transactions would increase this year, Cox Automotive anticipates that issues with new car supply and potential delays in de-fleet programmes will have a knock-on effect on the volume of cars entering the used market.

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Previously, a release of rental and fleet vehicles into the market was expected to stimulate recovery, filling forecourts with used cars, while also counteracting supply issues. However, insights from Cox Automotive have indicated otherwise.

Explaining the implication of supply issues, Cox Automotive insight and strategy director, Philip Northard, said: “The lease and contract hire sector can’t get new product and can’t de-fleet many of those low mileage, nearly new cars that were hoped to enter the used car market in significant volume in the coming months.”

Consequently, dealers have rehashed their expectations. Data from Cox Automotive revealed that 82% of dealers expect supply to remain the same or decrease, and 33% predicted that wholesale prices will go up.

According to AutoFocus, the most likely new car forecast for Q2 2021, is 520,835 registrations, representing a 5.9% drop compared to the 2000-2019 pre-pandemic average. This scenario assumes modest pent-up demand in April and May, with consumer reluctance hampering a full recovery.

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In the best-case scenario, the used market will could stay broadly in line with pre-pandemic levels of activity, in which case the UK market will end the year with 7.27m car transactions.

While used car supply has steadily increased since the start of 2021, volumes remain below expectation at this time of year, and crucially down compared to the period last summer between the first and second lockdowns. Used car supply constraints are anticipated to continue throughout the first part of the year.

As we progress through the year, the governments financial support for the industry will diminish. Northard believes such support may be “masking a greater degree of financial exposure than we currently understand.

Explaining the relevance of the UK’s economic recovery for the sector, he continued: “If recovery is weaker than expected, with higher debt and unemployment, then public demand for used cars will be slower to resurface.

“In spite of these uncertainties, we firmly believe that the future lies in dealers’ hands. They can put themselves in a position to succeed by remaining adaptable: maximising the potential of omnichannel retailing, sourcing and managing stock flexibly, spreading supply routes and aiming to sweat as much ROI as possible from every asset.”