The annual Used Car Market Report
form BCA shows that with new sales faliling, this market segment
cannot be ignored – by dealers and financiers alike, says Jo
Tacon.
In 2002, the used car market was worth
£28.1 billion, whereas the new car market was valued at £32.4
billion; in a nice piece of symmetry, in 2008 those figures were
exactly reversed, showing the huge importance of the used car
market today (see chart 1). As such, auction house BCA’s
2009 Used Car Market Report is a timely reminder that dealers and
financiers ignore the second-hand market at their peril – while its
findings show that it is a sector in turmoil.
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More and more accepted
Peter Cooke, KPMG professor of automotive studies at the University
of Buckingham and the report’s author, says that the growth in
value of the used car market can partly be seen as a response to a
shift in perception on the part of consumers who previously bought
new cars, from seeing the car as a prestige purchase to seeing it
as a tool.
“Cars have always had an element of being
a fashion item, but economic reality has intruded for many
purchasers, and they are moving back to a utilitarian role,” he
says. “The car is no longer the iconic purchase it used to be.”
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By GlobalDataThe reliability of used cars has improved
dramatically over the past decade, he adds, taking away much of
another traditional reason to choose a new car over a used
model.
As an illustration of the growing appeal of used
cars, Cooke points to the gender split among used car buyers, which
had been converging to near-parity in recent years – but which, in
2008, saw men increase their ‘lead’ over women by 1.7 percentage
points, equivalent to 3.3 percent growth.
Push-me, pull-you
Every used car started life as a new car, once upon a time. Cooke
points to what he sees as a potential threat to the balance of the
used car market, if current conditions continue: a lack of
good-quality nearly-new and used cars.
The scrappage scheme has also changed the
profile of the new units which are coming into the market, with
scrappage scheme customers often opting for smaller, cheaper cars,
often from Far Eastern manufacturers.
“A steady decline in used car volumes, particularly
in the younger segments, will almost inevitably continue as the car
parc shrinks and changes shape. This in turn will mean used car
retailers will need to seek to enhance their value-added and
profitability per unit, if they are to remain economically viable,”
states Cooke – and it is hard to argue the point.
Even after the recession, the change to customer
buying habits may not revert to the patterns seen in the past
(see chart 3). Fourteen percent of those surveyed said
they would opt for a used car instead of a new one, with the same
proportion saying they would choose a smaller car – meaning less
profit per unit for manufacturers, dealers and finance houses. Only
6 percent said they would go back to new cars once the current
economic turmoil has passed. It may be that there will be a
permanent and significant structural change to the shape of the
used car market.
Dealers bypassed?
In a market for used cars which fell by
400,000 units between 2007 and 2008 – representing a drop-off of
5.6 percent – private-to-private sales were far less hard-hit than
dealer sales, with the former falling by only 0.7 percent year on
year compared to the latter’s much sharper drop of 9.1 percent.
If dealers are being bypassed by purchasers of used
vehicles, so too are providers of point-of-sale finance. And with a
relatively small but still significant proportion of respondents –
5 percent – citing a lack of car finance as one factor influencing
their decision on whether or not to change cars, perhaps car
finance companies could think of ways to attract potential
customers back into dealerships, working with retailers on
attractive finance offerings. With the used car looking set to grow
in importance, finance houses of all types must gear themselves up
to deal with this new paradigm. (See charts 4 and 5 for a
breakdown of responses by gender, age and region.)
But even so, good finance deals alone may not be
enough to win back consumers, as only 4 percent of those surveyed
said that availability of 0 percent finance would influence their
choice of used car dealer. Meanwhile, 42 percent of those surveyed
said that, as a direct effect of the recession, they would not
replace their car – a staggering number, and one which illustrates
the scale of the challenge facing motor retailers.
Scrappage schemes have been instituted
across Europe, including in the UK, as a government-backed way of
bolstering sales. In the report, Cooke asks: “Will a scrappage
scheme merely bring forward replacement car purchase, or will it
create enough genuine incremental sales to sustain industry
recovery and growth?”
While the final answer is yet to be
determined, Cooke is clear that – in the meantime – the retail
industry is storing up trouble for itself, as associated aftersales
businesses will suffer, with a concomitant loss of skilled
technicians’ jobs, which he describes as “insidious”, adding that
“we’re destroying the skills base in the aftermarket.”
The problem, as he sees it, is that the new cars
bought under the UK scheme will all have a manufacturer’s warranty,
meaning that instead of regular services to a well-maintained
10-year old car, a dealer will have instead customers with cars
which need a single service a year (see Motor Finance,
July). In even worse news for dealers, many of the new cars
sold though the scheme are made by Far Eastern carmakers, which are
more likely to offer five-year warranties – cutting down even
further on future profit opportunities.
In addition, while there may be a slender profit to
be made on a new car sale, the dealer is losing the money he would
otherwise have made “from selling a couple of used vehicles as part
of a pull-through.”
“I am very concerned that the government is just
interested in short-term headlines, and that they haven’t fully
thought this through,” Cooke adds.
With such short-, medium- and long-term challenges
facing the motor retail sector, neither car retailers nor motor
finance providers can afford complacency. Cooke’s final exhortation
to dealers is to innovate, innovate, innovate – making sure that
CRM is more than just gestured at, pushing hard for sales to family
members, and ensuring the used car product mix is attractive and
suitable for the area, among many other potential routes to
profitability.
“The critical message is perhaps one that a used
vehicle operation needs to constantly push out the boundaries of
knowledge and understanding to identify both threats and
opportunities,” Cooke concludes.
For UCMR-related enquiries, contact
Tim Naylor, BCA, tnaylor@bca-group.com
Falling volumes: Fewer motorists buy a new or used
car
This year’s survey shows that 35 percent
of motorists had bought a car in the past 24 months – compared with
37 percent who had done so last year, and 40 percent two years
earlier. The number of Buyers opting for a used car rather than a
new one was 71 percent for the second year running – although this
share was of a declining market volume.
Buying a new or used car?
Price, in the shape of being ‘unable to
afford a new car’, is having an ever more powerful influence on
buyers’ decision to choose a used car instead of a new one. Forty
percent of car owners in this year’s survey said ‘I couldn’t afford
a new car’ was their foremost reason for buying used, 27 percent
were confident that used cars represented ‘better value for money’,
while 21 percent believe they are subject to ‘lower
depreciation’.
Younger car buyers were clearly feeling the impact
of the economic downturn at the time of the survey; three out of
five 17 to 24 year-olds and half (48 percent) of car owners in the
25 to 34-year age group declared they ‘couldn’t afford to buy a new
car’ – in contrast to just 23 percent of 65 years-plus motorists
who are in a similar position.
Source: BCA UCMR
Chart 5: Breakdown of response by region
|
London |
South East |
South West |
Wales |
East Anglia |
East Mids |
West Mids |
Yorks/Humb |
North West |
North |
Scotland |
|
|
Q: How might the severe economic conditions |
|||||||||||
|
Lack of car finance |
9 |
5 |
3 |
5 |
4 |
7 |
6 |
5 |
5 |
4 |
8 |
|
Q: What might you look for in a car when the |
|||||||||||
|
Low interest credit |
5 |
3 |
7 |
1 |
– |
3 |
5 |
3 |
7 |
6 |
13 |
|
Source: BCA UCMR |
|||||||||||
