VUCA, an acronym that stands for volatility, uncertainty, complexity, and ambiguity, is likely to be the next big buzzword for the automotive industry and, more specifically, on used values, as a result of COVID, according to Cox Automotive. VUCA is used to describe the situation of constant, unpredictable change that is now the norm throughout several industries as businesses gear up for a new year that continues to provide challenges to all organisations. In our view, we will have to get used to a VUCA trading climate for some time yet. As an industry, we must think beyond the traditional and embrace it as there is no quick fix back to previous normality. Given the industry’s outlook in a post-pandemic world, we expect VUCA to continue.
2021 saw a year of frustration, as new vehicle production problems, primarily caused by semiconductor shortages and coronavirus restrictions, disrupted the wholesale and retail vehicle markets. Other issues became more severe, such as used vehicle prices reaching record levels, the accelerated shift to digital in wholesale and retail markets, and rising inflation which continues to impact consumers, putting pressure on disposable incomes - with shockwaves felt in the UK and the US. All of this coincided with the dramatic rise in electric vehicle (EV) sales last year.
The November 2021 Consumer price inflation report published by the Office for National Statistics stated that the largest upward in contributions to that month’s CPIH 12-month inflation rate at 1.34 percentage points came from transport. This was principally from motor fuels and second-hand vehicles. That month recorded the highest ever average UK petrol price at 145.8 pence per litre compared to 112.6 pence per litre a year earlier. The report stated that the contribution from second-hand cars increased from 0.01 percentage points in April 2021 to 0.32 percentage points by November 2021, the largest contribution from second-hand vehicles since the start of the National Statistic series in January 2006.
Philip Nothard, Insight and Strategy Director at Cox Automotive, said: “Since the coronavirus pandemic began, the automotive industry has been grappling to navigate the constantly changing headwinds. The old days of retailers typically making a profit in Q1 and then focusing on maintaining profit in Q2 and H2 are gone. From manufacturers to independent motor dealers, businesses must acclimatise to a new norm. Additionally, the use of digital has disrupted the industry, and so have changing market dynamics. What used to be seasonal norms no longer exist as everyone adjusts to a completely new trading climate.”
The new normal for 2022 is likely to centre around retailers’ focus on margin retention and profit. Dealers can no longer rely on chasing volume because it is simply, for now, not available. Therefore, dealers enjoy strong demand for vehicles and are less likely to offer discounts to consumers. With demand likely to outstrip supply of vehicles for some time, Cox Automotive’s view is that the market will not return to pre-Covid norms.
Nothard explained: “Over the past two years since coronavirus first took hold, dealers have learned new ways to derive a profit from retailing vehicles, and many have shown they can hold their margins even with increased values in the wholesale market. There are also opportunities to make money even outside of normal trade values. These lessons hold many retailers in good stead, regardless of what 2022 throws at the industry.
“We will see the market softening in time, but there is no tsunami of product on the horizon for two reasons. Firstly, because producers of semiconductors don’t expect normal conditions to resume until 2023 and secondly, because the types of vehicles entering the wholesale sector are not the same experienced in pre-pandemic times.
“In the first days of 2022, leaders of businesses will be wondering how to get through another year of unpredictability. The advice of Cox Automotive is to adapt to VUCA and embrace change. The expected rise in energy bills will continue to hit disposable incomes, there remains no end in sight to inflation, we will experience further digitisation of retail and digitally assisted sales, changes in the way OEMs retail new and used cars are accelerating, a rise of subscription/mobility products is imminent, and we will continue to shift to EVs as the year 2030 nears. To adapt to this, businesses must be resilient, continue to price cars correctly, market them properly, image and promote them properly, and make the best of the new norm. That way, their products will remain attractive to consumers, despite changing market forces in the background.”