As we move into the New Year, we are starting to see used cars prices stabilise after a troubling final quarter in 2023 which saw guide prices fall by 10.5% over a two-month period. This should be positive news for many dealers who have relied on used car sales to drive the performance of their business since the pandemic, as supply of new vehicles was restricted by one of a number of factors.
From discussions with dealers I work with over the last couple of months, it is clear that the fall in used car prices in the last quarter had a big impact on the overall results for 2023.
Many dealers had to take the hit on the fall in value whilst also experiencing pressure on margins which had been exceptionally high since the pandemic. The main point to note is the desire to hold limited used electric vehicles as they had resulted in some significant losses in the year, and it is possible that this will continue into this current year.
EV market
2024 is set to be a challenging year for car manufacturers as they must meet the new annual government mandated EV target of 22% else they’ll face a fine of £15,000 per vehicle. This seems to be an optimistic position from the BEV market share reported by the SMMT data of 16.5% in 2023.
The main tactic for meeting these targets is likely to be offering high discounts to the customer to make owning an electric vehicle more attractive, as a large majority of customers still seem unsure on the switch, and it is likely that this discount will be supported by both an enhanced offering in terms of OEM support, as well as a reduction in the expected Gross Profit margin achieved by the dealer network.
Other possible routes to this target will be looking to utilise the fleet market and Motability offering. It must be noted though that the incentives offered by the government on going electric are still very limited and it is likely to be lower transacted prices (through OEM support) and better finance deals that will drive the electric sales.
We are already seeing large numbers of manufacturers offering 0% APR on new electric vehicles. What is unknown at this time is the knock-on impact on used (or nearly new) electric vehicle values.
Car shopping
I’ve recently been on the search for a new family car and to be honest EV alternatives haven’t been considered due to the whole life cost, unless a salary sacrifice route was to be taken.
What was interesting to see was the difference in price for a new vehicle compared to the equivalent used vehicle (at say 1 year old and with under 10,000 miles on the clock). Despite the large difference in list price, when looking at a PCP deal the new vehicle was actually cheaper per month than the used vehicle due to the large differential in the APR offered, and the expectation that the captive finance provider would be offering a stronger Residual Value on the new vehicle.
For me, it made sense to opt for a new vehicle however this does come at a cost of having to wait 3 months (which may impact our holiday plans to drive to the Alps at Easter!).
Moving forward
I’ve only touched the surface of the challenges and unpredictable nature of the industry going into 2024 but it’s likely to be very interesting for both the customer and dealer.
- For the customer, is it time to make the switch to an electric vehicle?
- For a dealer, is now the time to take on a Chinese EV brand?
- For the government, is it time to reconsider the levels of incentives offered?
Regardless of what happens, it’ll be interesting to see how dealers adapt to the ever-changing market!
The next step
For more information, please contact Daniel Riding on d.riding@uhy-manchester.com, or your usual UHY adviser.
