Five future predictions for the used car sector revisited

Last June, to mark our fifth birthday, we dusted off our crystal ball to take a look at what the next five years might have in store for the used car sector. 18 months and one global pandemic later, how are our predictions fairing? Liam Quegan and Pam Halliday revisit and take stock.

Digital channels will overtake physical auction in terms of volume

What we said then:
The volume of stock bought via online channels will overtake that bought through physical auctions as existing services mature and new services come to market.

Where are we now?
Liam: "The market had been moving online for a while so in 2019 it was fairly obvious that one-day online auction sales would overtake physical. What we couldn’t have predicted was how quickly this would happen. Less than one year later, Covid-19 had made sure that nearly all wholesale vehicles are now sold online, and the market has adapted remarkably well.

"Often dealers have been cautious about online as the belief is you have to touch the metal to believe it. But what this year has shown us is that with high-quality imagery, detailed vehicle descriptions and thorough background checks, dealers can and have been buying with confidence online. In fact, it’s highlighted many of the inefficiencies of the traditional methods.

"Of course physical auctions still have a place, but once we emerge out of the other end of this pandemic, we won’t be returning to the ‘old world’. More likely is a hybrid marketplace where the majority of vehicles sold are through online channels, with specialist and older vehicles more suitable for auction at physical centres."

Franchise dealers selling more used vehicles

What we said then:
We’ll see used cars receive a greater share of the average franchise dealer’s attention, budget and physical footprint.

Where are we now?
Pam: "I think it would be an exaggeration to say that we’re in this place today, but the direction of travel is certainly plain to see. Covid-19 has once again played a role here. As production lines ground to a halt in the late spring, new car supply was severely constrained meaning the only choice was to increase focus on used vehicles. This actually complemented consumer behaviours at the time, with studies showing a large number of public transport users looking to purchase a used car in place of catching the bus or train.

"The growth in the number and quality of car supermarkets and new digital entrants like Cazoo has also sharpened the focus on used vehicles. These types of businesses are doing very well at the moment and franchised dealers aren’t naïve enough to ignore it."

Greater emphasis on integrated services

What we said then:
Car dealers will place a greater value on integrated services over the next few years

Where are we now?
Liam: “We have certainly seen this trend play out over the last 18 months, accelerated of course by Covid-19. Mass-migration to online this year has highlighted the critical value of connecting the online and in-store customer journeys. It’s forced dealers to re-evaluate their existing ways of working and in many cases, make investments to ensure they are future proof.

“New tech on the market, such as eVA Valuations & Appraisals, has shown how the traditional method of appraising a part-ex can be brought into the 21st century with a connected consumer journey. We’re also seeing greater adoption of DMSs among dealers to help consolidate processes and bring efficiencies. These systems—once the domain of larger dealer groups—are now accessible to even the most modest dealer.”

Increased demand from dealers for flexible funding

What we said then:
As dealers become increasingly resourceful in terms of how they find the right stock for their business, their requirement for flexible capital will come to the fore.

Where are we now?
Pam: “Again, Covid-19 has influenced this area massively this year by providing dealers with even more options to fund their forecourt. Many dealers took advantage of government schemes over the spring and summer and these have no doubt helped to keep businesses flexible during a time of great economic uncertainty.

“Not all dealers have been making use of funding however, with many opting for a cautious approach to funding by battening down the hatches and relying on their own capital.

“As we emerge from the various restrictions in place and volumes increase once more, cash flow and having the freedom to act how they want will serve as a great motivator for dealers. Flexible funding options are vital to enable this.”

The advent of online-only used car dealers

What we said then:
We’ll see used car dealers without a physical retail presence make their mark.

Where are we now?
Liam: “This is an interesting one. There’s certainly been a huge shift to online retailing in the last 18 months and not just down to coronavirus, but it’s clear that physical retail is still playing a role in most cases.

“We’ve seen several online-first propositions launched in the last year such as Carzam, Cazoo and Cinch—all with significant investments and big promises to address the key consumer reservations about buying a car online. But Cazoo’s acquisition of Imperial Car Supermarkets shows even the most ambitious online-only evangelists have recognised that physical is far from yesterday’s news.

“What Covid-19 has done is force the sector to take online even more seriously and showed consumers that it can be a great experience.”

Conclusion

So how did we do? It’s been a great experience to look back over our predictions from 18 months ago and broadly speaking we’ve been correct—but not necessarily for the reasons we expected. We can’t ignore the impact Covid-19 has had on our industry this year and its impact will last beyond the time when we can return to ‘normality’. But the pandemic isn’t the factor causing these changes and what we’ve seen is an acceleration of trends caused by other factors such as changing consumer behaviours and new players in the market. Regardless of the cause, the future is arriving faster than expected and it’s an exciting time to be part of the automotive industry.