Strategy&: Digitisation pressuring UK used car market

27 May 2015 Consultancy.uk

Digitisation is expected to put pressure on the used car market in the UK in the coming years, research by Strategy& shows. As digitisation is allowing car buyers to consult increased amounts of information on possible car targets and compare prices as a result of improved transparency, used car providers should embrace this trend and move online to avoid losing out on precious customers, the consulting firm stresses.

Strategy consulting firm Strategy&, member of the PwC network of firms, recently released new research into the used car market in the UK. In its report, titled ‘The future of the UK used car market - Trends and opportunities’, the firm recognises intensified competition for used car providers as digitisation boosts price transparency and squeezes margins.

Average car age in the UK

In the past years, the UK car market has grown gradually from 30.1 million in 2009 to 30.9 million in 2013, with an expectancy of 31.1 million for 2014 and 31.4 million for 2015. Although the overall number of cars on the road in the UK remains essentially stable, the mix of cars is changing, Strategy& explains. As the market is still recovering and people are holding on to their cars longer, cars on the road are becoming older. Since 2006, the average age of cars has moved up from 6.7 years in 2006 to an expected age of 8 years in 2015.

UK used car market
The used car market in the UK, with approximately 7 million cars sold in 2014 - up from 6.8 million in 2013 - is the largest used car market in Europe, and the ratio of used-car to new-car transactions has increased by more than 15% over the past six years.

UK used car supply by source and age

In the UK, the supply of used cars comes from a variety of sources, with private owners accounting for more than 81% of the total, with one-third of these cars traded in to dealers for a new or used car and two-thirds sold to private buyers or directly to dealers. Especially the older cars, 6-8 (59%) and 9+ years (78%), are sold as a non-trade in, while the younger cars, 0-2 years old, are also offered by vehicle manufacturers (27%) and rental companies (13%).

The majority of used cars in the UK are sold to end customers by private owners (39%), franchised dealers (32%), or independent dealers (24%). Franchised dealers account for the most sales in all the car categories below 9 years, with private owners selling the most cars older than 9 years, which account for 38% of all used car sales. A small portion of cars is sold via ‘other’ routes, such as auction houses.

UK used car sales volume by channel and age of car

Future
In its report, the consulting firm also highlights the future of the used car market in the UK and sees several trends that will impact the market. In addition to the changing supply, as a result of the age of cars on the road increasing, the firm sees three additional trends.

The first is the digitalisation, with more and more information to be found online, car buyers can now find loads of information on cars and used cars online and consult this prior to making a purchase or without visiting a dealer, a trend that is boosted by the increased use of mobile devices as 20% of web searches into ‘used cars’ are conducted via a mobile device. The increased amount of information online leads to the second trend of increased transparency, with car buyers able to compare information and prices of cars from different sellers. As the importance of convenience is growing and private car owners are willing to lower their price for more convenient sales processes, more and more will turn to newer online business models to sell their cars.

Relevance of trends on specific business models

Strategy& explains that the trends will make it particularly challenging for channel participants, the franchised dealers, independent dealers, and online buying platforms, which have long depended on lack of transparency to prosper. To be able to survive the trends, players in the car market will need to move online as “digital intermediaries have the opportunity to shape the structure of the industry as their influence grows, accentuating competitive pressures and revealing the disparity between the most efficient buyers and sellers and the laggards.”

The report concludes: “The UK used car market is undergoing important changes, and participants must respond if they are to thrive. A common link among the trends […] is an overall reduction of information asymmetry, which has different impacts based on scale and the importance of that asymmetry for the participant in question. […] These shifts will impact all participants in the used car value chain. However, by understanding the trends and adapting their business accordingly, companies can ensure they are positioned even in a more dynamic used car market.”

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