Strategy&: Digitisation pressuring UK used car market

27 May 2015

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

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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Four ways digitalisation is transforming car brands and dealers

16 April 2019

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”