Cox Automotive monthly market tracker for May 2022 shows:

  • Changing market dynamics make predictions difficult for the sector
  • Declines in both supply and demand will result in further headwinds
  • Age, mileage and sold price of used cars sold at Manheim increased
  • SMMT new car results show a continued decline
  • Industry told to “buckle up for H2”

Vehicle retailers across the globe are getting back to basics after a period of what many would describe as ‘order taking, rather than selling’ and need to be ‘match fit’ for what could be a challenging second half to 2022. In Cox Automotive’s latest market tracker for May 2022. However, as the next few months unfold, we will likely see retailers deploy all sorts of strategies as they demonstrate the same resolve and resilience that got them through the headwinds.” 
The current imbalance in vehicle supply and demand throughout the UK will continue, further hampered by rising inflation and interest rates coupled with persistent disruption to new vehicle manufacturing processes and the ongoing conflict in Ukraine to create a perfect storm.
Philip Nothard, Insight and Strategy Director at Cox Automotive, commented: “The time to fix your roof is when the sun is shining, and for the past few months, this has certainly been the case for retailers, with high consumer demand ensuring that even a stifled used vehicle supply is quickly and easily snapped up. However, with consumer confidence declining, we could be set for a perfect storm throughout the next six months where supply and demand are stifled.” 

Manheim May auction results

Early signs that the wholesale market is restabilising can be seen in Manheim’s wholesale key indicators for May, which demonstrate a market that has returned to pre-pandemic performance, following an unseasonal peak in 2021. In addition, there was clear evidence of changes to dealers’ stocking profiles, with high mileage and older vehicles continuing to have an effect. 

Manheim experienced three noteworthy key indicator increases last month. Compared to May 2021, the average age of cars sold increased by 3.8% to 101.7 months, and the average mileage of cars sold increased by 4,221 miles to 70,331 miles.
Manheim witnessed CAP Clean values decrease by -4.90%, to 95.23% year-on-year. In addition, the average first-time conversion rate decreased by -10.10% to 73.10% year-on-year.

Nothard said: “While the average age, mileage and sold prices all increased in May 2022, compared to the previous year where we saw an unseasonal peak, the falls observed in the last month’s CAP Clean and first-time conversion rates demonstrate that the performances of used cars at Manheim auctions is returning to pre-pandemic levels. This is especially evident when you consider the May 2019 first-time conversion rate was 71.90%.” 

Time to buckle up for H2” 

A key factor bringing wholesale metrics down from the highs of recent months and more in line with pre-pandemic levels is the fact that both supply and demand are falling. Throughout the past few months, burgeoning consumer confidence and high levels of spending gave the economy a short boost, ensuring that the limited used vehicle supply was quickly sold on – and for high prices. However, with the recent squeeze on household finances, further exacerbated by the ongoing situation in Ukraine, the sector faces a sustained period of low demand and low supply.

The result is a mixed market picture. Nothard explains: “Retailers will need to buckle up to get through the next six months. We have a retail sector that’s facing volatility in the economy, uncertainty on when new vehicle supply will improve and the added complexity as the industry transitions to electrification. So while some are cautiously buying stock and focusing on ‘ready to retail’ low preparation vehicles to ensure days to sell are maximised, others attempt to stimulate demand through price reductions. In some corners, retailers are holding firm and focusing on profit retention.

Declining supply and demand are also set to impact the fleet sector, with a significantly reduced volume of part-exchange and fleet returns entering the market. Nothard added: “The extent of the issues caused by supply problems have led to fleets registering far lower monthly numbers of new cars than in pre-pandemic times, which has affected the used car market.”  

New car market slump

Recent data released by the Society of Motor Manufacturers and Traders (SMMT) highlights the new car market's supply challenges, which will permanently affect used vehicle parc for years to come. Just 124,394 new vehicles reached the retailers throughout May, representing a decrease of nearly 21% compared to April. Apart from the pandemic-hit May 2020 market, where retailers experienced a boost as showrooms reopened, SMMT data shows the worst May performance since 1992. As a result, the overall new car market is now down by 8.7% this year against forecasts, the equivalent of 62,724 units.

However, one glimmer of hope is the performance of electric and alternative-fuel vehicles. Battery electric vehicle registrations rose by 17.7%, representing one in eight new cars joining the roads last month. On the other hand, plug-in hybrids declined by 25.5%, while hybrids were up 12%, meaning deliveries of electrified vehicles accounted for three in ten new cars.

Nothard concluded: “The electric vehicle segment reflects the availability of stock.  While these numbers look attractive month-on-month, they are against a relatively low backdrop. In addition, it must be considered that many manufacturers have accelerated their transition towards EV manufacturing due to the semiconductor shortage. Therefore, it’s no surprise that the types of vehicles that are more readily available are returning improved sales numbers.

“However, with the long lead time it will take many electric vehicles to reach the used market, and a declining supply line to retailers, this does little to allay any concerns about used market traction in the face of supply and demand constraints.”