8:14 am, February 13, 2024
Used car dealers have endured a market that has bucked and boomed in recent times, and the most agile have expertly adjusted themselves to take advantage. But a period of predicted stability could reap dividends for used car dealers, as long as they remember the basics and work closely with their suppliers.
To put it simply, the days of a normal used car market are long gone and car dealers have had to be responsive to an ever-changing landscape.
‘Actually, I would ask the question “what is a normal used car market?”,’ remarks Paul Hyne, Black Horse and Lex Autolease commercial director. ‘If you look at the last 15 to 20 years, we’ve gone from saloons to hatchbacks and back to saloons, to estates to MPVs and then to SUVs, followed by even bigger SUVs. We’ve gone from diesels to petrols to AFVs (alternatively fuelled vehicles). If anything, it’s taught us all to be more resilient and a bit more flexible in how we approach the market and not bank on anything.’
Having said that though, Hyne believes the used car market is getting back to a more even kilter which is good news for both car dealers and buyers alike.
‘The used car market is performing more normally than it was a year ago,’ he says. ‘It has been very strange over the past two years that used cars were appreciating in value, but it has been equally surprising how quickly people forget that a car is a depreciating asset.
‘From a customer’s perspective, they need that stability – if you’re a PCP customer in the last 18 months, for example, you’re going off one contract with plenty of equity on it six or eight months ago and that car is going to look very, very different now. That’s going to surprise your average consumer and that’s bad.
‘What we need is to have the kind of market that is more stable rather than normal. We need to have a balloon payment or a guaranteed future value that the customer is expecting. It’s nice to have a bit extra on top, but it’s unsustainable to have 30 or 40%.’
The best car dealers know this, though, and are well placed to react to shifting market dynamics – particularly if a period of stability is possible.
‘We’ve recently got used to being able to move cars easily around the world again, with cheaper shipping costs and better parts availability, but it can all change in a flash,’ says Black Horse’s consumer distribution director, Preston Rogers. ‘All of a sudden you now can’t get through the Red Sea – you can’t take anything for granted.
‘This year there will be uncertainties in the market – a good example is the upcoming general election, and uncertainties are generally a bad thing for consumer confidence. We will have these micro markets and the market is constantly shifting – dealers have to be anticipating the next thing. Will there be too many SUVs? Will there be too few EVs in the market? The best operators will have their finger on the pulse and they will be successful regardless of how the market moves.’
Used car dealers can protect themselves from the worst of what 2024 can throw at them by being receptive to trends and by being agile.
Just some of the challenges ahead are used car stock management, new car margin retention, the ZEV mandate, new entrant brands, and whether consumer confidence will hold up. But there are profit opportunities to be had, believes Rogers.
‘If you look back at the years with huge used car volumes, it was a very volatile market,’ he says. ‘But if you were agile and you could move and adjust your stock quickly and adjust prices quickly, then profits could be made, and the same is true now – there is a huge opportunity for dealers.
‘Secondly, what are your processes like? Do you have discipline within teams of people to follow up on leads? Do you give great customer experiences? These aren’t the most popular things to talk about but usually they make the biggest difference.’
Having the right finance partner is crucial in all of this, too, believes Hyne.
‘You’ve got to be partnered with the right finance provider to help you navigate the storm,’ he says. ‘A finance provider should be willing to engage with dealers about the products they are offering, about what customers are asking for, and how they can help them educate customers about EVs. Ultimately, they need to help dealers exploit this new opportunity.
‘The good finance companies will be there to offer dealers stability. There are players in the finance market, us included, who are willing to have those conversations, and value long-term partnership with dealers rather than short-term tactical opportunities.’
And with strong partnerships, dealers can navigate choppy waters and reap the rewards of a more stable market that’s potentially on the horizon.
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