Is this the new normal in used?

In an article first published in Auto Retail Bulletin, Philip Nothard, Insight Director at Cox Automotive, considers the KPIs dealers should be considering when evaluating their performance.

The question of whether the used car market has finally returned to ‘normal’ - i.e., to a time and state before the pandemic and other forces had a markedly negative impact on growth and performance – is often asked. Using 2019 as a KPI benchmark for used vehicles provides a platform for understanding the sector’s shifting dynamics. Given how unprecedented this period has been, it could be argued that the use of statistics to gauge performance during this extraordinary period could veer towards uncertainty. However, this benchmark affords us valuable insights into how market patterns have evolved and allows for a nuanced analysis of the changes witnessed.

Analysing stocking policies requires a thorough examination of production shortages and regulatory changes, particularly those tied to net zero initiatives. These factors have profoundly impacted the composition of vehicles available in the market and the strategies deployed by dealerships and retailers. Understanding such shifts is crucial for adapting to the changing landscape (the new normal) and optimising business operations. 

Since 2019, the wholesale supply sector has undergone significant transformations driven by reduced new vehicle production, a switch away from the production of ICE derivatives in favour of new EVs, and a pronounced pivot by retailers toward used vehicles as a reliable source of income. This shift has resulted in notable changes in the age and mileage profiles of vehicles entering the wholesale sector.

Between 2019 and Jan 2024, the average age of wholesale vehicles handled in our remarketing channels increased from seven years (or 84 months) to 8.5 years. However, the YOY change (Jan ‘23 v. Jan ‘24) has seen a slight drop (from 103.6 months in Jan ‘23 to 102.4 in Jan ‘24). Mileage echoes the trend, from 64,383 in 2019 to 70,861 in Jan ‘24. That figure represents a minuscule increase on the 70,767 miles recorded in Jan ‘23. Still, these changes demonstrate the industry’s general response to challenges in the market and highlight the importance of flexibility in navigating them.

Production constraints and widely reported supply shortages have seen several manufacturers expand approved used vehicle schemes while retailers, adapting to a new landscape, have adjusted more than just the age and mileage parameters of their stocking policies. A considerable number have also integrated brands from outside their usual franchised brand allegiances that would previously have typically been relegated to wholesale channels. This adaptive response underscores a creative spirit and resilience in an industry facing emerging trends and issues. It has driven continued growth and success for many and introduced a new level of competition for retail-ready stock in the wholesale channels.

In addition to recalibrating our understanding of average wholesale trade values, vehicle age and mileage, it is crucial to acknowledge the impact of shifting renewal cycles, contract extensions and the continuous improvement in vehicle quality. This shift is shaping new benchmarks and revealing the changing dynamics influenced by fuel type preferences. Manufacturers, incentivised to transition away from ICE vehicles, are increasingly focusing on electrified vehicle line-ups, further modifying the market landscape. 

Market realignment

Where values are concerned, the KPIs tell an interesting story of the past four years. The average sold value of a used vehicle in the benchmark year was £6,100 compared to £8,203 in Jan ’23 and £6,918 in Jan ’24. That is a 16% drop YoY compared to a 13% increase on four years prior. The data highlights a market undergoing realignment but one that is still ahead of its pre-pandemic state.

The average first-time conversion rates for all fuel types tell an equally interesting story. Our figures show that the 2019 figure rested at 82%, then 87% in Jan ‘23 and 82% in Jan ‘24. That five per cent drop tells us that the year so far has started slowly compared to the same period 12 months ago. Then, the market was characterised by undersupply and strong demand. The imbalance was due to the low number of vehicles entering the sector. The slower start this year, in terms of demand, is conversely due to increased supply and subdued consumer demand.

Overall, vehicle average age and mileage have shown marginal changes YoY compared to pre-pandemic levels of 2019. However, there has been a notable 10% increase in average mileage and average age has lengthened by 22%.

Figures from our digital remarketing platform, Dealer Auction, tell a similar story. Average ages have increased 11% YoY. This mirrors the realignment of used wholesale values following a period of unseasonal strength in the post-pandemic recovery. Meanwhile, retail prices have held firm, with the average retail margin increasing by £515, or 28%, YoY.

The past four years have seen a decline in market share for ICE vehicles, reflecting a shift in supply and demand dynamics. The industry continues to move cautiously towards a more alternative fuel vehicle-based stock profile. Still, recent value volatility (as highlighted above) and the evolving fuel sector mean there is a greater need for vigilance and flexibility.

KPIs for BEVs suggest yet another shift in the sector, with BEVs increasingly dominating the sub-three-year-old vehicle cohort. Apprehension lingers, as average YoY first-time conversions for this fuel type are creeping tentatively towards the 2019 figure of 81%. Greater weight is given to categorising the current state of the market as the new ‘normal’ by the fact that the figure was 67% in Jan ‘23. Average values move ever closer to parity with equivalent ICE vehicles too, further suggesting that dealerships pondering the make-up of their stock profile should now thoroughly consider their options.

Despite progress, challenges persist, particularly in the used BEV sector, where barriers to consumer adoption remain significant. While apprehension may linger, encouraging signs emerge as first-time conversions approach benchmark performance and average values move closer to parity with equivalent internal combustion engine vehicles. Although firmly rooted in this new normal, the numbers prove that utilising data and being fully aware of the market’s vagaries are more important than ever.

Trade prices – a disparity of depreciation

The wholesale price volatility we have experienced over the past few years is mostly behind us. The pandemic pushed prices to unsustainable highs which have now begun an overdue realignment. It’s been painful for many, particularly those operating in shorter market cycles compared to operators in the fleet and leasing sectors, but stabilisation is needed.

I would argue that our trade price figures show that used values overall are now, tentatively at least, approaching something akin to normality, especially after the realignment witnessed in H2 ’23. Leaving aside BEVs, whose values have been characterised by more acute volatility over the four years, values have not depreciated at the rate they would have without the pandemic and its accompanying new car supply impact.

Although recent months have seen trade values edge towards significant depreciation, this can be attributed to factors such as increased new vehicle supply, the return of retail incentives and ongoing subdued consumer demand. The elements at play will combine to push values increasingly towards more predictable levels. The volatile tendencies of recent years underline the importance of closely monitoring KPIs to gauge supply and demand dynamics and their impact on used values. However traditional year-on-year and even month-on-month comparisons no longer offer the same level of guidance. Adaptability and vigilance are key to navigating the ever-changing terrain.