Used car supply is expected to remain restricted in the short term thanks to delays in de-fleet programmes and slow new car supply.
That’s the view from Cox Automotive which is urging caution for the used car market and says not all dealers are seeing pent-up demand following the easing of lockdown restrictions this month.
The firm says dealers will feel a knock-on effect from manufacturers struggling with the supply of new cars, thereby affecting fleet, rental and leasing companies delaying de-fleeting vehicles and slowing up the release of used cars into the marketplace.
Philip Nothard, Cox Automotive’s insight and strategy director, explained: ‘Our latest dealer sentiment survey revealed that 54 per cent of dealers were confident that used car transactions would increase in 2021 compared to 2020.
The news that manufacturers are struggling with the supply of new cars will be felt at dealers when it comes to obtaining stock
‘This comes despite dealers feeling the effects of spending the first three months of the year in lockdown – signalling that they are feeling optimistic about the rest of 2021, now that in-person retail is once again possible.
‘However, the news that manufacturers are struggling with the supply of new cars will be felt at dealers when it comes to obtaining stock.
‘This means that the lease and contract hire sector can’t get new product and therefore 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.’
Cox Automotive had hoped a regular supply of de-fleeted vehicles would help restore a booming used car market, however it says that’s not the case.
Nothard continued: ‘Or latest warning does reflect the expectations of dealers, with 82 per cent expecting supply to remain the same or decrease, and 33 per cent predicting that wholesale prices would go up.’
According to AutoFocus, Cox Automotive’s new digital magazine, the most likely new car forecast for Q2 2021, is 520,835 registrations, representing a 5.9 per cent drop compared to 2000 to 2019 pre-pandemic average.
Cox Automotive says this assumes some modest pent-up demand in April and May, with consumer nervousness holding back a full recovery.
In the best-case scenario, the firm believes, it’s possible that the used market will 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.
Used car sales demand not felt by all dealers
Showrooms reopening resulted in positive auction performance in the first half of April, said Cox Automotive’s Manheim division.
Compared to April 2019, Manheim’s wholesale activity showed CAP Clean performance (plus four per cent) and first-time conversions (plus two percent) increase, indicating that buyers are returning to auctions to replenish stock sold since reopening.
Cox Automotive data shows the average wholesale car price for the first 16 days of April 2021 is at £6,448, an £846 (15.1 per cent) increase compared to the same period in 2019.
However, not all dealers are experiencing pent-up demand following the latest lockdown easing, says the firm.
Pent-up demand is buoying the sector after the reopening of showrooms, but several factors remain unresolved
While used car supply has steadily increased since the start of 2021, volumes remain below expectation at this time of year, and down compared to the period last summer between the first and second lockdowns, the company said.
Cox Automotive expects used car supply constraints to continue throughout the first part of the year.
Nothard warned the automotive recovery will not be automatic and is unlikely to be of the same scale to what the market saw when the first lockdown eased in 2020.
‘Pent-up demand is buoying the sector after the reopening of showrooms, but several factors remain unresolved,’ he said.
‘One is what happens as the government’s financial support for the automotive industry wanes – which will inevitably occur, though the furlough scheme has been extended until September.
‘This ongoing support has enabled many businesses to stay afloat, but it may be masking a greater degree of financial exposure than we currently understand.
‘Another factor is that we need to ascertain the UK economy’s overall economic recovery scenario. If it 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 omni-channel retailing, sourcing and managing stock flexibly, spreading supply routes and aiming to sweat as much RoI as possible from every asset.’
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