In this article…
Marsh Finance recently attended a Credit Strategy event where AutoTrader provided their data on the car finance industry. In this article, we delve into the three main areas covered in the report. For more industry information, visit AutoTrader’s insights page here.
Supply Shortages
With the backlog of new car productions, brought on both by the Covid-19 pandemic and the subsequent semi-conductor shortage, new car prices have risen by 20% with a lack of discounting for those looking to make a purchase. With a fairly fixed demand for new cars, supply has been unable to keep up and so prices have risen. With some car brands facing significant backlogs and pre-registration not an option for many, the new car market is at risk of seriously stagnating. With new car registration growth slowing, demand has shifted to used vehicles leading to a 4% increase in used car prices to the year prior. For reference, the level for the year prior was already 24% higher than 2021 indicating the staying power this demand has.
Marsh Finance have previously commented on used car prices increasing, citing the chip shortage and Covid-19 as the contributing factors whilst stating that used car finance is on the rise. For those offering finance for used cars, now is the time to streamline operations and ensure your customer journey is fantastic in order to tap into this growing segment of the market. We also believe that dealerships must stay on top of their stock. Supply chain issues and a rising demand for used cars presents both a challenge and opportunity. On the one hand it can diminish sales potential if you can’t meet demand. On the other hand it can be a source of competitive advantage, by having a stock that can cope with increasing demand and subsequently maximise sales.
The Electric Car Market
Electric cars are on the rise. The need to be more environmentally conscious has pushed many to go electric, but how will this affect the car industry? With AutoTrader predicting ¼ of UK cars being electric by 2030, these vehicles are set to hit our roads more frequently, but this number could be higher. Numerous factors, including charging issues and battery decline, are possible answers to the slow growth predicted, but the main one is price. As mentioned in the report, only 9 out of 77 new EVs are below £30,000. Teething issues combined with a high price is deterring EV purchases, and this has led to significant supply and demand effects, with supply massively exceeding demand. The lack of trust in new EVs, combined with high prices, has pushed consumers committed to an EV purchase to used cars. Used EV sales are leading the way in the electric range, although they are still nowhere near the sales numbers of petrol and diesel.
To summarise, the electric car market has a long way to go- the idea is strong but the execution is currently lacking. If battery issues and prices lower, there is no reason why EVs shouldn’t become market leaders in time. For car dealerships, EV stock is definitely something to keep an eye on, as it’s bound to emerge as a leader in future, and you don’t want to be caught out.
The Changing Consumer
Technology surrounds us, it is front and centre in all our lives and the car finance industry is no different. We recently spoke to some of our partners of which all were in agreement that the online buying journey is now the most popular for car buyers. Although a fully online journey has decreased to 66% compared to 72% the year prior, the presence of online is not disputed. Being able to offer a strong online customer journey is essential to organisational success. The fantastic variety online buying offers has also pushed consumers to take charge of their own car buying, with people happy to take their business elsewhere if they are not happy with what’s on offer. This is backed up by the research undertaken by AutoTrader in which they found that 94% of car buyers say they research online as part of the car-buying journey. In an age where choice as at our fingertips, dealerships must have a varied stock to cover as many needs as possible. Failure to do so will simply see you lose business elsewhere. It isn’t all doom and gloom for the in-person experience, as 92% of buyers say they still visit a dealership as part of the journey. Therefore to optimise the customer car buying journey, championing your in-person and online offerings is key.
Summary
The presentation closed with a focus on two areas to maximise sales and efficiency. First was stock and supply chain planning and getting this right so that you can meet demand perfectly. Extensive research of consumer buying patterns will highlight popular models and makes of cars. Amassing a strong stockpile of these cars will increase sales potential. Also touched on is improving supply chains. With the global semiconductor shortage, it became clear that the car supply chain needed optimising to limit the damage of future issues. Reviewing your supply chain and making any necessary changes is a great way to ensure supply can meet ever-changing demand. The final tip centered around EV planning. As mentioned earlier, used EVs are more popular than new EVs, somewhat based on the price a new vehicle will set you back. Getting the right balance of electric cars whilst putting plans in place for stock expansion into the future will protect you against current demand surges and the future growth of EVs, and allow you to tap into the market potential as often as possible.
We would like to thank AutoTrader for their fantastic insight and hope this article has given dealerships some insight as to challenges and opportunities in their industry. For more of this content, sign up for our newsletter, to receive exclusive industry-based content.