10:17 am, February 13, 2023
Used car retailers will need to be creative over the next 11 months as prices fall and consumer priorities change.
That’s according to Cox Automotive, which has released its used car forecasts for the year.
In its latest digital automotive insight update AutoFocus, its baseline scenario – that is, the most likely – is for 7,096,932 used car transactions this year, which is more than three per cent up on 2022’s total.
But gains made in the first quarter of this year versus last year’s quarterly performance will be marginal, with an estimated 1,790,034 transactions, representing a marginal 0.9 per cent increase if achieved.
Cox says it believes that replenished stock levels and renewed fleet utilisation will contribute to improved fortunes, but economic pressures will hamper the market from reaching its true potential.
The sector is also continuing its Covid recovery, with more than 46m vehicles having been ‘lost’ over the past three years because of production and supply issues.
Philip Nothard, insight and strategy director at Cox Automotive, said: ‘We must remember that the used vehicle market is still in a peculiar time.
‘Although there are signs of weakness, this is all against the heights used vehicle values achieved over the past few unprecedented years.
‘We are entering a period where supply will improve, but consumer demand is expected to decline further, exacerbated by the cost-of-living crisis.
‘As such, retailers will once again need to be creative. For example, tactical registrations and discounting could become popular strategies as margins weaken and product surplus increases.’
Cox’s baseline scenario sees the market continuing to see a slow, steady recovery but says that depends on the current cost-of-living crisis not worsening.
Its upside forecast, based on factors including a recovery in new vehicle production volumes and an upswing in the number of consumers, points to 7,510,412 used car transactions for the full year.
This would be a nine per cent increase for the year versus 2022 and a 1.8 per cent annual gain on the pre-pandemic market.
This scenario also sees a solid start to the year with 1,909,227 Q1 transactions predicted, which would be 7.6 per cent up on last year’s quarterly figures.
However, its downside forecast suggests a Q1 transactions figure of 1,175,362 and 6,886,509 for the full year.
This scenario takes a more pessimistic view towards the success of measures taken to tackle inflation and interest rates, a continuation of the supply chain woes affecting new vehicle production and a collapse in consumer confidence.
Cox says the EV market is likely to be affected this year since despite manufacturers shifting strategies to improve EV supply, many still consider ownership costs prohibitive.
As a result, there is increasing caution and risk for residual values of electric vehicles.
Nothard said: ‘As some leasing companies review strategies for their electric vehicle fleets, others may choose to delay that transition due to uncertainty.
‘But as we have observed over the decades with combustion engines, given time, the supply, demand and residual value uncertainties will settle and find their place in the market.’
Cox says its baseline forecast has proved to be one of the most accurate available.
Its baseline forecast for last year, first published in June 2022, was 99.8 per cent accurate to the SMMT’s actual used car transaction results, which were published on Friday.
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