Ramifications of the Coronavirus pandemic, dealer shutdowns, Brexit uncertainty and material shortages in new vehicle production have contributed to Cox Automotive revising down its used car forecast for 2021.
The company has adjusted its full-year 2021 forecast downwards to 6,766,250 used car sales, -0.6% (-40,414) versus its April forecast and -8.3% compared to the 2000-2019 average. This best-case scenario assumes a slight drop off in retail demand after a modest summer period.
According to Philip Nothard, Insight and Strategy Director at Cox Automotive, the most likely scenario for the industry will see this quarter end on 1,828,054 used car sales, down -5% on the 2000-2019 average.
Q3 2021 used car forecast compared to 2020
Writing in the second issue of AutoFocus released this month, Nothard said: "After so much time with their showroom doors closed, dealers were raring to hit the ground running, but unfortunately factors out of their control still hold them back to this day. Most new car models face shortages or lengthy lead times, placing added pressure on a used car market starved of supply."
One million new car registrations have been lost because of the pandemic, and the current supply issues will remain throughout the summer and likely for the remainder of the year. As a result, it won't be until Q4 that Cox Automotive expects an indication of whether the balance between supply and demand is stabilising.
Nothard added: "By then, the strength of the economy will be clearer as the furlough scheme comes to an end and consumer and business confidence is understood. But that means the industry faces a period of uncertainty over the coming months, and we can't be complacent about the ongoing threat of Covid-19 and the potential for new restrictions as we head into winter."
The outlook for used cars could see the current demand levels throughout Q3 remain if some restrictions around overseas summer travel stay in place. This would benefit dealers as those who put off travelling abroad for holidays could use savings and income to replace their cars.
With no floods of stock on the horizon, Nothard doesn't believe that the price increases witnessed in the used car market will return to normal mid-2019 levels; in fact, prices could yet rise further.
Nothard explained: "Wholesale has seen a two-tier market, with rising prices and higher demand in younger vehicles along with lower consumer demand seen for older vehicles, where prices haven't risen."
Dealers holding onto stock
Brexit, the Coronavirus pandemic, and supply shortages for manufacturers, are all challenges filtering through to used car retailers. To combat this, dealers are leaning on their data, experience, and knowledge. According to a recent Cox Automotive dealer sentiment survey, the lack of ex-fleet volume has led to 81% of dealers holding onto part-exchanges due to high retail demand.
Nothard added: "This is further impacting wholesale supply and driving competition for the stock that's available. Furthermore, 41% of dealers expect this change to continue even when supply improves, suggesting that some dealers' habits have changed permanently."
In another Cox Automotive survey, 96% of dealers changed their stock profile strategy because of the pandemic and supply constraints. Dealers are doing this by stocking brands they usually wouldn't and stocking higher mileage and older vehicles.
Nothard concluded: "Dealers have shown they've become agile and adaptable in these unpredictable market conditions. As a result, days in stock have reduced to 22 days, from an average of 59.7 days in September 2019 (Source: ASE Global). This highlights both the level of retail demand and dealers' ability to meet it at all costs."