Positivity through growing uncertainty

Dealers feeling positive but growing uncertainty in new car market

•    Used car market continued to strengthen throughout September
•    Growing concerns among manufacturers and dealers for new car sales
•    Questions around scrappage scheme’s success

“The second biggest month in terms of new car registrations has just closed and dealers are continuing to benefit from strong sales in the used car market, but should keep an eye on a potential softening in the closing quarter of the year,” said Philip Nothard, head of external relations at Cox Automotive.

“In the past four weeks, we have started to see dealer sentiment change towards new car sales forecasts which contrasts with high levels of positivity around the buoyant used car market,” he added.

“Dealers had a strong August in terms of used volumes and values and in our auction business, Manheim, we saw steady demand matching steady vehicle supply. We also heard reports of stable used car performances across the networks throughout September, which has been a huge confidence boost to the market.”

Data from the leading automotive services provider, released last month revealed that used car volumes sold through Manheim’s physical and online auctions resulted in a 7.1% increase for August year-on-year. Its dealer-only platform, Dealer Auction, saw a 12.2% annual increase for average vehicle volumes in the same period, and in addition, Cox Automotive’s car buying portal, Motors.co.uk, reported a 7% uplift in average stock volumes. September also reflected the same trend, and early reports indicate an uplift of over 5% for the company.

The new and used car market

He continued: “The SMMT reported that the industry sold 705,024 used cars in September 2016. With the pace of sales for used cars continuing as it is, it’s likely 2017 figures will exceed this.”

Despite growing positivity around the used car market, Nothard highlights that the strong interest in used vehicles could soften as we progress through the closing months of the year, and suggests dealers should be somewhat wary.

He said: “While figures show 469,696 new cars were registered in September 2016 – the largest figure on record, we predict that the days of rushing to buy a new car on the first day of new plates may have peaked for now, in the current market.

“Add to this summer data from Motors.co.uk that shows dealers have experienced higher than usual stock volumes in August. This is due to a 5% increase in the average number of days a car stayed in stock throughout July. This has forced vehicles to remain on the forecourt for longer, while new vehicles continue to arrive.

He added: “The new car market is challenging and we are hearing that some dealers are feeling the strain. Some are starting to find it harder to shift new vehicles quickly, which is impacting volumes on forecourts as more come through. There’s a slight imbalance in the supply and demand so we can speculate that this lag will soon start to put pressure on dealers.

“In addition, although September is traditionally the second biggest month in terms of new car registrations, last year’s sales could be a big figure to replicate. For those dealers who bought in new and increased stock levels in anticipation of high consumer demand, we suspect it might have been quite a challenging month.”

Nothard also hints at talk of pressure across the board for OEMs, with several reducing their targets for new car sales. He said: “We know that many OEMs and franchise dealers have already recognised that their original expectations have been unrealistic for the market demands, but even with reduced targets, many are predicting they will fall short in Q4.

“The scrappage schemes are also a major topic of conversation at the moment with talk of a lack of confidence in these incentives being able to improve sales of new cars. We’ve seen several new schemes introduced over the summer, especially throughout August and September, but dealers are indicating that they have not seen the impact that many expected and hoped for.

“Put simply, the general consensus across the dealer network is that the schemes have been delivered too late into Q3, have too many conditions, and have too many differences in terms of incentive for the buyer. It’s confusing for the trade and the consumer, and the sentiment is that this has all resulted in them having little or no influence on sales.

“Q4 could be difficult for dealers and there may be pressure on the market as we go through the final months of the year and into 2018. We already know forecourts have higher than anticipated stock volumes and the consensus seems to be that consumer demand for new cars is currently too low to counter this.
He concluded: “Those in the industry are right to be cautious, and many dealers are doing well to focus efforts on used and after sales, to counter reduced new car revenues. The remainder of 2017 could be challenging.”