Green shoots observed in new and used supply, whilst supply chain faces disruption

• Signs of recovery could be at risk by supply chain disruption
• Reasons to be optimistic with healthy order banks
• Age and mileage of used cars sold at Manheim increases once again
• Continuation of 2021 market dynamics likely
• Cox Automotive most likely forecast close to SMMT actual results
• Three out of five major European markets enjoy a positive performance

Despite healthy orders ahead of the March plate change, Cox Automotive is warning that further headwinds face the new vehicle manufacturing market, disappointing those looking forward to any projected recovery. Global political events mean that the sector could well be heading towards continuing rapid changing market dynamics, similar to 2021.
 
According to Philip Nothard, Insight and Strategy Director at Cox Automotive, March's new car registration results usually creates one of the highest volume months of the year. Despite the rapidly changing global political situation, Nothard says there are reasons to be optimistic, with healthy order banks for March registrations, albeit for specific manufacturers and particular models. This could create an imbalance of profile of part-exchanges and future used vehicles entering the parc. The hope for Cox Automotive is that March will generate some much-needed used vehicles for the wholesale and remarketing sector and dealers.
 
Nothard refers to changes in retail where reports imply manufacturers are operating a 'sold order only' process or deciding to prioritise the retail channel, in addition to either limiting supply or offering no response to when production will resume. The topic of the Agency Model is also accelerating, and whilst some manufacturers may already have plans in place, others know they must do it but are not sure how.
 

Manheim February auction results

February’s wholesale key indicators continued to display signs of a stable market created by the ongoing imbalance between supply and demand, which has existed since the summer of 2020. 

Manheim lanes last month experienced three key indicator increases. This was seen in the average first-time conversion, which increased by 0.74% to 84.40% month-on-month. In addition, the average age of cars sold also slightly increased by 1.2% to 102.1 months, and the average mileage of cars sold increased by -0.56% and up by 396 miles to 70,558 miles.

However, despite three key indicators experiencing month-on-month increases, used car values fell slightly, with the average sale price decreasing by 2.32% or £187, to £7,866. CAP Clean values also experienced a marginal month-on-month fall of 0.22%, to 98.04%.

Writing in Cox Automotive’s new Q1 2022 edition of AutoFocus magazine, Nothard said: “It’s increasingly likely that we will see a continuation of many of the market dynamics we saw in 2021. However, although there are signs of new vehicle supply returning, it is currently very dependent on those manufacturers who have managed to secure the necessary materials to build vehicles and therefore keep production lines running. And even then, those manufacturers can only fulfil quotas on select models and derivatives.

“While manufacturers are slowly getting to grips with their production issues, and the situation will improve as the year progresses, this will be a prolonged and gradual process. As a result, we will not see a flood of stock enter the market, but rather a gradual increase as the backlog of orders for new vehicles gets cleared, in turn generating much needed stock for the used market.”
 

New car results

According to data from the Society of Motor Manufacturers and Traders (SMMT), 58,994 new cars were sold in the UK, an increase of 13.04% on the results from February 2021 – but still far off the pre-pandemic month performance of February 2020, where sales were 34.93% higher. 

Cox Automotive published figures in the new edition of Autofocus, which represented Q1 2022 new car sales forecasts, giving best, mid, and worst-case scenarios. With the mid-case scenario looking to be the most likely, this result was close to the actual figures published by the SMMT, with a prediction of 56,256 new cars sold – representing a 4.6% difference on the actual statistics.

Nothard added: “With signs of a recovery in motion and with March 2022 seeing the release of the new ’22 registration, we’re optimistic to see a better March new car plate change month than the previous two years. Our mid-case scenario for the month will see around 330,645 new registrations. At the moment, the SMMT has recorded 174,081 new registrations over January and February, so I will be hoping to see around 332,723 registrations in March to reach even the mid-case scenario expected results. However, the situation in Eastern Europe could change the fortunes of the industry on its head once again.” 

European performance

Compared to its European neighbours, the UK was the only country to record double-digit positive year-on-year results at 15.0%. At 62,100 sales and an increase of 6.6%, Spain had the second-best year-on-year performance in February. Germany followed with 200,500 sales representing a 3.2% increase. Conversely, France’s year-on-year figures show 115,400 sales represented a -13.0% fall, with Italy suffering the most significant decline with 110,900 sales representing a -22.4% fall.

Nothard added: “New-car registrations in France, Italy, and Spain showed clear signs of improvement last month after the weak start to the year. Although there were double-digit year-on-year declines in France and Italy, the results are still encouraging given the environment of rising inflation and ongoing supply constraints. This applies even more to Spain, where the volume of new cars registered in February rose by 6.6% yearly.”
 
The overall picture of the monthly performances is better represented when February 2022 is compared to the same period in 2020, the last comparable pre-pandemic year month. Last month, Germany’s February new car sales performance represented a -16.4% fall. The UK and France followed with falls of -25.9% and -31.2% respectively. Italy’s fall in sales was -32.0%, with the biggest fall occurring in Spain at -34.4%.

Nothard added: “Three of the five markets enjoyed a year-on-year increase for February, indicating green shoots from the supply chain. However, as with the used vehicle sector, they remain behind the results enjoyed ahead of the pandemic taking hold in 2020. So, while we’re seeing a recovery in new car sales in the UK and elsewhere in Europe, we must remain optimistic around green shoots of supply, particularly the much-needed used vehicle product.”