Why used car sales are driving dealer profitability
Used car sales saw a solid performance in the UK in Q1 of 2019, with sales down by just -0.6% year on year, highlighting the stability of the industry with more than 2 million transactions. We’ve seen a 30% growth in demand for hybrid, plug-in hybrid and pure electric cars and we remain confident that the industry will continue to grow.
There is a little more uncertainty in the new car arena however, with new car sales falling by -4.8% in the last year. New car sales hit a peak in 2016 when 2.7 million units were registered in a single year, but these numbers heave steadily dropped by -12.7% in the years past.
It’s clear that times are changing, with most OEMs seeing year on year drops as the sector faced headwinds caused by the value of the pound, supply issues associated with the introduction of WLTP (Worldwide Harmonised Light Vehicle Test Procedure) and uncertainty over Brexit.
SMMT might be forecasting a further -2.3% drop in new sales over the next year, but we can still find opportunity for success in this ever changing industry. What we’re seeing is the inevitable right-sizing of the market with volumes more closely in line with genuine demand from retail, fleet and business buyers.
OEM new car sales targets have been reined in over the last couple of years, but this has allowed the spotlight to shift from the new showroom to the used car forecourt; and that’s where real profit opportunities can be found.
With a shift in the franchised market, used cars are now an integral driver for profitability with the current round of interim statements showing the high level of confidence amongst the listed groups, all of whom are targeting growth in their used operations over the course of the year.
It’s easy to see why. Recent years have seen the used market consistently trend at around 7.7 million units, that’s just over three times the size of the new car market. The franchise sector has strategically started actively promoting itself as the place to buy a used car, have it serviced and eventually trade it in for another. Factor in good margins and the opportunity to sell finance, GAP, service plans and warranties and used presents more profit opportunities than new could ever hope to match.
To illustrate the point the most recent composite figures from ASE, the dealer profitability specialist, showed a barnstorming performance by used car sales departments with retailers producing an impressive return on investment of 86.6%.
The new car industry is by no means on the way out - and we can already start to feel shifts in the market that might change the way the industry functions as a whole - but many dealers and franchises have grown to enjoy the profit potential offered by used cars and will fight hard to stay at the forefront of this industry.
