The outlook for car retailing in 2025
Looking to the year ahead is never an exact science, but looking at the data points and sentiment, while it’s not without challenges, 2025 looks like it’s likely to be a year of slow and steady growth for new and used car sales.
The economic backdrop
According to the Organisation for Economic Co-operation and Development (OECD), UK interest rates will fall more slowly than expected over the next two years due to November's Budget, which is set to create upward pressure on inflation. The UK interest rate, which currently stands at 4.75%, is now expected to fall back to 3.5% by early 2026.
The OECD expects the economy to grow more slowly this year than it forecasted three months ago before accelerating rapidly next year. Its December forecast suggests that GDP will rise 1.7% next year, up from its previous forecast of 1.2%.
Consumer confidence
Now armed with certainty after the General Election and protracted Budget storylines, UK consumers feel more confident. The GfK Confidence Tracker saw consumer confidence improve by three points in November to reach -18. All five measures used in the report rose, but encouragingly for car sales, these were led by major purchase intentions, which jumped five points.
New car sales 2025
Having summarised two of the major external factors influencing car sales, it’s time to gaze into the crystal ball for 2025.
The SMMT is the key resource to support my slow/steady outlook. In late November, their latest forecast was that car registrations would rise another 1.8% to 1.977 million units, up from 2.029 million in July.
Inevitably, following the Autumn Budget, BEV’s market share is expected to increase. Volumes are expected to increase by over a quarter, and BEVs will take a little under a quarter (23.7%) of the total new car market. The SMMT also expects hybrid sales to rise.
Used car sales 2025
The used car market will continue to see supply challenges next year, according to Cox Automotive’s Insight Quarterly Report published at the start of December. Based on my conversations with dealers and remarketing firms, I share this sentiment, which is frustrating given that demand is there.
This situation is likely to mean further used car price volatility in the younger new category, where supply is most restrained. The other feature for used car dealers will be the growing BEV parc. Whatever their views, it is clear that BEVs will only increase their used car footprint in the year ahead and beyond.
Given the changes to BIK for company car drivers, I would not be surprised to see the rises forecast here transferred to BEVs as 2025 unfolds. Unsurprisingly, ICE sales will decrease, with diesel falling to a market share of just 5.3%. However, petrol cars are set to hang on, albeit with a smaller 46.6% market share. Again, in the latter, it would not surprise me if this ended up lower.
The key lever driving the power source in 2025 will be the government’s approach to the ZEV Mandate. Of late, they have made sympathetic noises to OEMs about the fines, and we must bear in mind that next year, the target for OEMs rises to 28% of all cars being zero emission.
Challenges and opportunities in 2025
While we cannot ignore them, it’s all too easy to become obsessed with challenges. Without action, wage costs will rise due to the recently announced NIC increases for employers, utility prices are set to go up, aftersales revenues will come under pressure, and the impact of the ZEV mandate will create flux in the market. All of these are familiar; what we have to concentrate on is how we seek out the opportunities. Here are my top three thoughts:
- Optimise the sales process – a top tip in the latest ARN webinar, John O'Hanlon, Chief Executive at Waylands, highlighted the opportunity he had recognised to ensure sales processes were maintained rigorously, especially in following through on sales leads. Identifying bottlenecks and inefficiencies can create better customer experiences, increase sales and cut costs.
- Increased digitisation - AI is a hot topic, and there are multiple opportunities to deploy its use. One that interests me is optimising stock control, where a fused stocking approach can help balance stock levels more effectively. This balanced approach ensures that stock is combined to work across multiple locations in group situations, increasing sales opportunities and reducing stocking costs. It is undoubtedly an opportunity we are investigating for our customers.
- Greater collaboration, including the idea of ‘co-opetition’, is needed to form strategic alliances designed to help both (or more companies) by creating complementary or related products and cutting costs.
