Stock availability presents significant margin challenge

Cox Automotive Market Tracker highlights impact of stock shortage

Average wholesale prices for February show the year is continuing a positive trend, according to data released by global automotive solutions provider Cox Automotive, with February’s values the second highest for the month in the past five years. Figures for February 2020 put average prices at £6,756 for the month, with only February 2018 doing better in the past five years, at £7,160.

The new sales figures for February, released by the Society of Motor Manufacturers and Traders (SMMT), show a continued decline, with new registrations falling -2.9% in February YoY and representing continued stalling in the private buyer market. However, February is traditionally a low volume month, and this is the fifth highest February figure since 2011.

Margin continues to be a focus for all sectors – franchise, independent and supermarket, with many retailers assessing how to replace lost volume sales through increased margins and aftersales activities. For those focusing on garaging services, workshops at full capacity may create enough of a balance to temporarily manage the downturn in private car sales; however, powertrain confusion and uncertainty about the medium-term impact of coronavirus on automotive supply chains, consumer confidence and economic growth mean business planning may be a significant challenge for the medium and long-term.


Wholesale market data

Stock availability remains a challenge in the wholesale market, with a few anecdotal reports of declines of up to 20% in stock volumes for this time of year. Although wholesale volume declines are comparatively small, at just -2.4% YoY compared with almost -15% the previous year, this marks the lowest February total in the past five years. Indeed, only December totals have been less during that period.

With fewer good quality vehicles in the wholesale markets, first time conversions have increased for the third consecutive month, reaching 88.1%, a +3.8% increase YoY. Average age and mileage are also down YoY, -2.5% and -4.1% respectively, reflecting the start of a move to dispose of and renew vehicles slightly earlier in the process. Combined, this has led to an average price increase of +10.2% YoY.

Data from NextGear Capital, the stock funding arm of Cox Automotive, suggests similar trends, with the average price funded in February increasing to £7,902, up +3.6% YoY. Volume of vehicles funded was down -2%; however, the value increased +1.5% YoY, again indicating stock shortages are pushing prices up across the board. Average days in stock fell -2.3%, to 61.5 days, implying when good quality stock is on the forecourts, it doesn’t hang around for long.

Philip Nothard, Customer Insight and Strategy Director for Cox Automotive, said: “We are witnessing a fundamental shift in the global automotive sector, with much of the commentary in the past decade about the electric vehicle horizon, automation and Industry 4.0, and Mobility as a Service now making itself felt in the auction halls and on the forecourts across the country. While no one could have predicted the specifics of the coronavirus, or exact environmental policy announcements, the direction of travel has been clear for some time now.

“Forward-thinking automotive manufacturers, retailers and fleet management organisations have already begun to diversify their portfolios and introduce new products and services to their offering. Putting the customer – or driver – at the heart of decision-making has led to increased digitalisation, flexibility, personalisation and technology innovation. However, these approaches will be tested over the coming months and years as the pace of change is accelerated due to global shifts.”

Nothard continued: “While plenty of industry influencers and thinkers are racking their brains to put in place the business models which will best support a future automotive sector which is focused on service rather than product, the short-term presents some more immediate challenges. With the long-anticipated Budget this week, a need to push forward with electric and hybrid vehicles to manage current air quality concerns, and consumers challenged around disposable spending in light of any potential community lockdowns or employer closures, retailers will need to think carefully about attraction, retention and margin strategies.”

Wholesale fuel data

Reflecting the overall market, both petrol and diesel derivative wholesale prices have increased, up +18.4% and +3.1% YoY, respectively. New car registrations continue to track a decline in petrol and diesel models, down -7.3% and -27.1% YoY, according to SMMT data. Although still comprising 8 of 10 new cars registered, with petrol and diesel new car volumes only going in one direction, the ongoing shortage of good quality stock will affect a wholesale market which is supporting a driver base who are not yet ready to transition to alternative fuels.

Nothard said: “Market share for zero emission capable cars is increasing, while the SMMT also recorded an increase in hybrid registrations in February, up +71.9% YoY. By the end of 2020, there should be almost 100 different battery electric and plug-in hybrid models on sale in the UK. However, questions remain over how quickly such technologies will be adopted without wider infrastructure investment. Hybrid and EV volumes remain low in the wholesale market but prices show strong growth YoY, reflecting greater understanding of the residual value of such models.”


Retail market data

The latest dealer sentiment survey from Modix, the digital marketing arm of Cox Automotive, reflects the volatility in the market since the start of 2020. While almost two thirds (60%) were confident in economic improvement in the January survey, just under a quarter (24%) felt the same this month. Just below half of dealers (44%) felt an improvement in retail demand YoY in February, while a fifth (20%) said it was the same as in 2019.

Nothard comments: “There are opportunities, with the Consumer Confidence Index for February moving from -11 to -7. It will be interesting to see what happens when we get the March figures and if there is a significant movement.”

The upward trend for online activity continues to provide dealers with growth, with nearly two fifths (36%) suggesting this channel had increased. Physical footfall also showed a positive movement, with almost a third of dealers (32%) feeling activity in the forecourts had improved YoY.

Almost a third (32%) of dealers reported margins were up in January, dropping to just over a quarter (28%) this time around. Conversely, a third (44%) felt margins had declined YoY in February, leaving the remaining fifth (28%) to say that margins had stayed the same. Reflecting the wider market, most dealers reported a clear reduction in overage and days in stock for used cars, at 70% and 64% respectively, as supply pressures mount up.

Stock availability remains of significant concern, with half (52%) of dealers indicating current challenges will remain and the other two fifths (40%) predicting it could get even worse. Reflecting the recent SMMT results, three fifths (61%) of dealers reported an increasing in consignment stock.

Nothard commented: “It is clear, in an exceptionally volatile market facing significant global pressures, stock availability is a key concern for retailers. Good quality stock is making top prices in the wholesale markets, which is good news for vendors. Less so for the buyers who are having to cast their net wider and use more creative avenues to source vehicles which offer retail opportunities.

“Ongoing environmental pressures on fleets to renew, coupled with positive pricing in the wholesale markets, may lead to a flood of vehicles in the new financial year. We shall have to see how supply and demand rebalances if that happens, and whether the move is enough to prevent further declines in new car registrations.”

Latest data from the SMMT shows a UK new car market in decline, falling -2.9% in February, as growth in business and stability in the fleet sector fails to completely compensate for -7.4% YoY fall in private buyer demand. Traditionally one of the quietest months of the year, this marked the lowest February new car registrations since 2015, although higher than the 2005-2015 period.

Nothard said: “With so many factors influencing the automotive sector, it is certainly a period of fluctuation, contradiction, challenges and, hopefully, opportunities. Those who invest in future-proofing their business model, diversifying their income stream, protecting against external factors outside of their control – floods, viruses, and so on, will find themselves in a better position to weather the further storms which are certainly on the horizon.”

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