Car Market Tracker - August 2021

New Cox Automotive monthly insight report for July 2021 shows:

• Increase in the average price of a used car
• Increase in used vehicle mileage and age
• New car recovery below predictions
• Second weakest UK recovery compared to European neighbours
• Signs of further challenges caused by material shortages in the new car market

Cox Automotive is reiterating its warning to dealers to prepare for further supply disruption as raw material and semiconductor shortages continue to impact new vehicle production. The next few months are likely to see even greater demand for the used car market, and prices continuing to rise. Cox is warning that the end of the furlough period on 30th September, together with a widespread change in consumer spending habits, the impact of Brexit, and a wage war within the logistics sector, will continue to negatively impact used vehicle supply, availability and delivery.

Manheim July auction results

The impact of these market dynamics is already being felt at auction. Used car values continued to rise in July across Manheim’s auctions, with the average sale price increasing by 2.7% month-on-month to £6,124. However, the availability of desirable younger, low mileage and better condition wholesale vehicles continued to be low. As a result, the average mileage of cars sold increased by 2.2% to 69,685 miles, the average age increased by 1.9% to 102.9 months and CAP clean values fell by 1.2% at 98.9%, all month-on-month.

Additionally, first-time conversions were up 2.2% month-on-month at 83.3%. This result is behind that experienced in July 2020, when demand for vehicles was at its peak following the opening of showrooms from the 1st of June. However, first-time conversions remain ahead of June 2021 results, by 2.2%, as volumes keep key indicators at a healthy level.
 
Philip Nothard, Strategy and Insight Director at Cox Automotive, said: “The race for 'ready to retail' stock continues as supply remains limited, albeit reports are that consumer demand isn't excessive. This is due to typical seasonal patterns where consumers take holidays and enjoy summer downtime, whether it be a staycation or a trip abroad.

“Summer is also a time for consumers to make home improvements, and the relaxed social distancing restrictions are allowing families to travel and spend time together again, diverting the attention away from buying cars.”

Writing in the latest issue of AutoFocus, Nothard added: “To navigate the current headwinds, used car dealers are having to lean on all their experience, knowledge and data. A recent Cox Automotive dealer sentiment survey revealed that 81% of dealers have increased the proportion of part-exchanges they retain for retail. This is further impacting wholesale supply and driving competition for the stock that’s available. Moreover, two-fifths (41%) expect this change to continue even when supply improves, suggesting that some dealers’ habits have changed permanently.”

New car results

Last week, the Society of Motor Manufacturers and Traders (SMMT) released July’s new car results, the worst result for that month since 1998. 123,296 new cars were sold, a downturn of -29.5% compared to July 2020, where 174,887 cars were sold. This result also represents a -21.6% decline in the July 2019 pre-pandemic performance, highlighting the impact of supply across the global new-vehicle market.
 
The European market also reflects the continual challenges with restrictions, lockdowns and supply. As a result, July new car results across the continent represented a year-on-year decline, with France experiencing a steep decline at -35.4%, followed by Spain; -28.9%, Germany; -24.9%, and Italy; -19.3%.
Nothard added: “It’s clear the challenges to the industry with raw material and semiconductor shortages are continuing and it’s worth noting last July’s results came in that recovery period following the opening of the UK retailers from the 1st June 2020.”

Cox Automotive has received reports from manufacturers that some new vehicles require an average of 1,000 semiconductors to support specification requirements.  

Writing in the Q3 issue of AutoFocus, Nothard added: “The reliance on technology in vehicles nowadays is huge and this will only increase as more EVs enter the market and vehicles become ever more sophisticated. Electronics are responsible for 40 percent of a new car's total cost and forecast to increase to 50 percent by 2030. The microprocessors and chips that power modern vehicles are now so prevalent that they're practically a commodity in the same vein as steel and aluminium.”

The Covid-19 pandemic has also masked two further challenges for the industry that are only now being uncovered. These include the new EU-UK Trade and Cooperation Agreement following Brexit, where manufacturers and suppliers adapt to the new arrangements and an imminent 'wage war' in the logistics sector.

Nothard added: “The new TCA rules bring fresh concerns of rising delays and increased costs of vehicles entering the UK. The UK Government needs to ensure that the UK automotive industry is high on the priority for vehicle supplies from manufacturers.” 

July’s SMMT figures show that electric vehicle sales continued to record strong growth despite the fall in overall registrations. Battery electric vehicles (BEVs) accounted for 9.0% of registrations, while plug-in hybrids (PHEVs) remained strong at 8.0%. 

Writing in the Q3 issue of AutoFocus, Nothard added: “Millennials and Gen Z will propel the mass adoption of EVs. Those consumers, driven by a coronavirus-influenced rejection of ride-sharing and public transportation, are increasingly embracing car ownership and 30% of them say they want to drive an EV. This number will only increase as the technology becomes more affordable.”