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Since 2003, the number of new cars sold each year in the UK has declined, with the exception of 2007 – from 2.58 million sales in 2003 to 2.03 million last year. Equally important, new car sales are not projected to return to even 2.2-2.3 million, regarded by many as the “natural sales level,” for several years.
Many would claim that the reduction in sales and the car parc is no bad thing – but it does raise many implications for the motor industry, for motor retailing in particular and, of course, car buyers.
The implications of such a severe drop in new car sales is that dealers have had to restructure their businesses to be able to survive on much smaller volumes – through consolidation, reduction in staff levels, or even closure of some outlets.
Given that there have been fewer new cars sold, the immediate reaction is that there are fewer used cars on offer. In excess of 90% of new cars sold each year in the UK are replacement units and, as such, the equity in the used car has to be released before a new unit can be acquired.
The UK used car market is, in turn, some three times the size of the new car market – and many regard the task of the new car market as supplying the used car industry with product. Most cars, unless written off, will go through several owners from the time they leave the showroom until they are scrapped.
Historically, new car sales have steadily increased over time and that increase has fuelled the used car market. Yes, there have been dips, but the dip post 2007 looks as if it will last a decade or more.
The total UK car parc levelled off at 30 million units in 2008 and is likely to remain around that level for several years. It is the older vehicle group that will, like the national population demographics, become increasingly important.
The parc of vehicles aged up to five years old will be the sector to contract most dramatically in the next few years. While the sector peaked in about 2006, over less than 10 years that sector will decline by more than three million units.
Franchised dealers have traditionally focused their aftermarket business – service and parts – on cars up to about five years old. However, it looks as though there will be two million fewer units to service for some years to come.
The implications for the motor industry are significant indeed – lower new car sales; less traditional service work; fewer used cars to sell. Used car prices may increase.
Are we at the start of a revolution regarding the treatment of the aftermarket business with dealers seeking to support older cars, and a restructuring of service pricing – but with a knock-on effect further along the industry? And will they also need to consider selling older used cars?