7:21 am, December 17, 2024
After a challenging 2023 for the UK’s biggest car dealers, the outlook is positive.
Many large-scale car dealers reported reduced profits for 2023 due to challenging market conditions – but the outlook is bright, according to Black Horse.
Speaking to Car Dealer for a special video interview, the company explained why it believes top-performing car dealers saw depressed earnings last year.
‘There are a couple of factors here,’ said Black Horse consumer distribution director Preston Rogers.
‘Firstly, it reflects the more difficult market there was in 2023, particularly in the second half of the year, where stock write-downs became normal again, very similar to 2017 to 2019. I remember having conversations with dealers about writing down their stock as it was starting to depreciate again. This is a normalising effect, and dealers then had to become very selective on the kind of stock they were picking.
‘The second factor is that higher prep costs have crept in, particularly in the older used car space, the “heart-land” of the used car market. The one-to-three-year-old cars weren’t there in great numbers because of the Covid-19 pandemic new car supply crunch and dealers had to turn to older stock where the prep has taken longer and been more costly.’
Rogers explained that whilst these two factors combined made the biggest impact to dealers’ used profitability last year, in many ways it was just a normalising effect of the market.
‘The bumper profits of 2021 have now left. In some ways, you could draw parallels to OEM profitability. If you look at how OEMs performed in 2022, they performed well thanks to good supply and demand, but, in 2024, this has moderated and now demand hasn’t held up as well as supply.’
Some of the larger operators and family-run firms have been investing by expanding their portfolios of sites, Car Dealer has noted, so the picture is a nuanced one.
‘Expansion is tricky because if you look at what has happened, particularly in the used car space where we’ve seen some closures of big sites. It’s always a timing thing for when you take on bigger sites, because you need stock to fill these big showrooms,’ said Rogers.
‘There’s the phrase “one person’s leftovers is another person’s riches”, and you do find that when these sites come up for sale they are snapped up. So, clearly, different people take different views of the market.’
While that is true in some sectors of the market, Rogers believes that in the franchised space the trend is more towards consolidation.
‘There is a continuation of slightly fewer rooftops,’ he said. ‘I think the reinvestment is to take a bigger share of the market where maybe one or two sites are closing or up for sale. But they have to invest firstly to meet franchise standards and just remain competitive in the used car space.’
He added: ‘Some of that reinvesting is also in digital capability. We’ve seen businesses continuing their Covid way of doing business – being sharper to compete with those digital players, whether that’s new cars direct, agency, or some of the traditional online players.’
However, there are brighter skies on the horizon, believes Paul Hyne, Black Horse and Lex Autolease commercial director.
‘The outlook is definitely more positive than we saw in the first half of this year,’ he said. ‘There has been a lot of uncertainty in the market this year – changing government, inflation still running quite high. All of these things slowly but surely are ceasing.
‘The market seems a little bit more positive. On the used car front, the supply of zero-to-five-year-old cars is about 30% lower today than it was in 2019 – demand is still there. While we’re not expecting the kind of supply crunch that we saw post pandemic, it’s looking like there is going to be an imbalance of supply and demand.
‘Used car prices are starting to go up slightly; stock isn’t easy to come by, but where there are good cars they turn quickly and they turn for a good price. Hopefully, we’ll start seeing more of an uptick in finance penetration on used cars as well – it’s lower than it was, but it’s coming up.
‘The outlook is an awful lot more positive than what we saw in the first half of this year.’
Elsewhere in the interview, the pair chatted…
- Price rises and market dynamics
- Interest rates and the impact on dealers
- Electric vehicles and market trends
- Customer retention challenges
- Strategies for improving customer retention
You can watch the interview in full by watching the video at the top of this story.
Black Horse Limited. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered Number: 661204 England and Wales. Black Horse Limited is authorised and regulated by the Financial Conduct Authority.
