Navigating the shifting tides in automotive retail 

A good start

2023 commenced on a positive note, with improved new vehicle supply and the fulfilment of 2022 order books. Bodyshops proved to be a real highlight, with supply constraints stemming from capacity reduction leading to substantial improvements in Gross Profit Percentage. With stability in the used car market and thriving aftersales services, the year began with a positive outlook.

Winds of change

The winds of change swept in from May onwards, with a substantial correction in used vehicle prices dominating results. Some dealers opted for early clearance, taking the pain upfront, only to make significant purchases later in Q4 at seemingly attractive prices.

July brought upheaval with Stellantis' end-of-contract period causing disquiet, with several reported cases of dealers and the OEM parting ways. The OEM giant came under fire and the situation caused a lot of noise in the network. By September, a raft of management changes were announced and Maria Grazia Davino stepped in as Stellantis UK’s new Group Managing Director. Acknowledging “major operational problems”, Davino embarked on a nationwide tour of dealer partners, apologising for late payments of bonuses and promising to delay agency until at least 2026. The campaign appears to be working and has sparked positive discussions signalling that 2024 could be a turning point for Stellantis.

Dealers felt the pressure to push electric vehicles (EVs) from government and OEMs, despite limited demand from the retail consumer. The inevitable retail challenge resulted in many EVs ending up in corporate/motability channels. Despite Rishi Sunak announcing a delay in the ban on ICE cars to 2035, the government's zero emission vehicle (ZEV) mandate published at the end of September set a challenging target of 80% of all cars being zero emission by 2030. The 2024 target is set at 22%, which is likely to pose a real challenge for many brands.

As the year drew to a close, our discussions with clients during the year-end audit process highlighted various issues persist. These are heightened by the perception it remains difficult to buy vehicles at their CAP value, leading some to consider alternative valuation strategies, including CAP retail. Cost pressures have also emerged as a real problem, with employment costs and National Minimum Wage increases continuing to put a real strain on this area. It therefore came as a relief to learn that the Retail, Hospitality and Leisure Business Rates Relief Scheme will continue for 2024/25, providing eligible, occupied, retail properties with a 75% relief, up to a cash cap limit of £110,000 per business.

Entering 2024, the used car correction appears to be over, with stabilised prices and good demand reported through sites like Autotrader. However, depleted order books, especially for certain segments, signal a need for OEMs to be more generous in their offers to get stock moving. As we move through 2024, resilience, adaptation and proactive strategic decision-making are likely to emerge as key themes amongst the successful dealerships.

Compliance and legalities 

In the realm of compliance and legalities, the introduction of consumer duty over the summer has settled well, with few reported issues. And whilst HMRC continues to focus on familiar themes, including employment taxes and VAT, no new trends had been identified at the time of writing. 

However, the FCA's announcement in January 2024, signalling their intent to review historical commissions received on motor finance, raises concern. The decision could open the floodgates for millions of consumers to lodge complaints and seek compensation from motor finance houses, with three-quarters of the loan agreements between 2007 and 2021 said to have had some form of discretionary commission model.

Agency teething troubles

We couldn’t write a review of the year without mentioning agency, which continues to take centre stage. With Mercedes and Volvo launching their agency model during 2023, and a number of other major brands confirming they too plan to adopt the fixed-price, no-haggle agency sales agreements, the winds of change are undeniably sweeping through the industry.

The transition has brought various teething troubles, including challenges around systems issues, a lack of marketing expertise and various transitional issues, such as a dealer’s existing stock effectively competing for sale with OEM agent stock. The main benefit for ‘agents’ lies in avoiding high stocking charges, eliminating demo depreciation and de-risking the new vehicle business - allowing increased focus to be placed on other areas, such as used cars and other new franchises. Whilst dealers and OEMS work through the teething troubles, it is abundantly clear that the viability of the agency arrangement hinges on the level of commission.

A bumpy road ahead? 

The industry undoubtedly faces challenges, but it also holds promise, with stability returning to the used car market and opportunities for OEMs to redefine their approach. Resilience will hinge on effectively navigating the complexities of supply chain issues, evolving market demands and managing the push towards EVs. 2023 set the stage for continued evolution, where dealers must remain agile and proactive to thrive in the shifting tides of automotive retail.

Read more of our predictions 

For more of our predictions from our experts, download our 2024 Automotive Outlook to read their take on many of the key issues impacting the sector and the challenges and opportunities that lie ahead.

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