With the issues affecting supply, Is it time to re-evaluate your stocking policy?
By Marc Thornborough, Partnerships Director
The summer months are generally quieter for retailers in between March and September plate changes. But the market strength, fuelled by ‘massive’ levels of consumer demand, has been reflected in a huge growth in traffic to Auto Trader. In August, there were 70.2 million cross platform visits, representing a 36.4 % increase on the same period in 2019. It also marks a record level of August consumer demand and is the second highest number of monthly visits ever recorded, and this was for mid-summer! when most of the country generally have other things on their mind rather than searching for their next car. Obviously, the impact of ongoing foreign travel restrictions has stopped people once again from spending on holidays abroad.
Consumers spent 10.7 million hours researching their next car on Auto Trader, which is an 18% increase on 2019. This level of market demand shows no sign of cooling down any time soon and pressures on new car supply will only further strengthen used car demand. Buyers are not prepared to wait the extended lead times on new, recent research we conducted on our platform indicates that almost half (46% to be accurate) are unwilling to wait longer than 4 weeks to get their new car, and 74% said they’d be prepared to buy used if their new car choice wasn’t available in the time they were prepared to wait.
Moving on to Pricing, we also saw record price growth in August, with vehicles rising in value by over 17% YoY. To put the price movement into context, in August 2020 average prices were increasing at a rate of 6% YoY, which at the time marked a new record. Now price growth is accelerating at almost three times that rate. To look at just one example of vehicle price inflation, the average asking price of a Jaguar XKR today is £26, 447 a staggering increase of 48.3% on the same time last year. I keep getting asked by retailers how long will this continue and there are many commentators out there making predictions and forecasts and many retailers thought that the September plate change would bring some respite to the wholesale supply issue with an influx of part exchanges into the market. Truth is no one really knows for sure how long shortage of supply may go on for, I believe we won’t see a quick return to normal wholesale volumes becoming available, but consumer demand shows no sign of abating any time soon.
Now is the time for retailers to question their sourcing policy. Is it fit for today's market? What if limited supply of the vehicles you typically purchase at the trade prices you typically pay, goes on for another 12 months? Retailers tend to stick to what they know has done well for them in the past, late plate, high spec German models with low miles - sound familiar? Yet these vehicles are becoming increasing more difficult to source and more expensive. Observing the trade stock available we see that it’s getting older with higher miles on average, not the typical stock profile most retailers I speak to, tend to purchase. This will continue for several years as we see the impact of last year’s pause in new car production filtering into the UK car parc, meaning fewer 1–3-year-old cars available for some time to come. Lead times on new cars also increase with added spec, so future vehicles coming into the trade may not have the same high levels of specification retailers are used to dealing with today.
Retailers need to evaluate not just where and how they purchase at trade but also the profile and age of vehicle they stock. There's nothing worse than an empty forecourt, with every empty space typically costing a retailer around £16 per day in lost profit. But replacing it with any vehicle to fill a gap is equally as dangerous to retailers, they must use the data and tools available to understand what's in demand in their area, the average days to sell and the typical margin of the vehicle, regardless of a retailers current stocking strategy. It’s not a lowering of standards it’s a widening of their view of what's available currently, and what will be available in future at wholesale to meet their margin expectations and capitalise on today’s buoyant used car market.