Dealer attitudes suggest a level of uncertainty about a 2022 car retail market increasingly defined by vehicle availability, the transition to electric vehicles (EVs), and automakers shifting to a agency franchise model.
Respondents to AM’s 2022 outlook survey indicate that many retailers remain pragmatic about their fortunes in the year ahead, with many expecting to stay put after an under-delivered year in terms of volume, but have seen the vast majority benefit from record profitability.
Among the findings, more than 52% of business leaders surveyed said they expected profitability to be the same or better than in 2021, while 31.9% planned to increase headcount for grow their business, despite the staffing headaches explored on these pages last month.
The relationship between falling volumes and strengthening margins is laid bare in responses to suggestions that the supply of new cars will negatively impact earnings in 2022.
More than a third (38.3%) disagreed or strongly disagreed, suggesting that many are not too optimistic about the continued shortage of new cars.
A smaller proportion (31.9%) disagreed or strongly disagreed with a suggestion that the supply of used vehicles would have a negative impact on profitability, with 42.6% suggesting it would.
There is clearly a desire to acquire a larger share of a used car sector offering maximum profitability after increases in value of almost 30% on average since the start of the year.
MARGIN IN A RESTRICTED MARKET
Derren Martin, head of valuations at Cap HPI, Phillip Northard, director of strategy and insight at Cox Automotive, and Ian Plummer, chief commercial officer of Auto Trader, said there was little chance of an influx important of new cars or used cars so soon.
As a result, should retailers fear a ‘seismic’ drop in used car values in 2022?
Martin said the end of November of eight months of rises in wholesale values - with a 1.2% drop to the 60,000 mile mark over three years – was seasonal and that it was “highly unlikely” that the next year leads to a significant drop in values.
Ongoing problems with the supply of new cars, stemming from shortages of semiconductors and other materials, are expected to continue the limited flow of cars to the UK until at least the second half of next year, a- he declared.
“The first quarter of 2022 will be quite strong and in January and February you might see some upward moves,” Martin said.
“I think it will stay strong until at least the summer when we might see some easing in semiconductor issues.”
Martin said his “biggest concern” was the end of next year when supplies could come back online more widely and urged the industry to use “cautious remarketing” to avoid a drop in the price of cars from opportunity if volumes increase rapidly.
But he added: “The reality is that there have been 1.7 million lost records in the market. There will be vehicle shortages for some time and this will keep prices high. When values go down, they won’t go down 30%. I don’t think there will be a crash at any time. A 30% loss would be unlike anything we have ever experienced before. It would be seismic.
Nothard said there will be “no product tsunami” in 2022.
He said: “I think retailers will need to keep a close eye on valuations to maximize their margin, but the outlook for the year will likely be one of more stability with some mild peaks and troughs.”
Plummer is relatively optimistic about 2022. He is optimistic that the consumer confidence seen in recent months will continue, helping to maintain the kind of margins that will make up for any lost volume.
The average price of a used car advertised on Auto Trader has now risen by more than £3,400 – to £17,366 – since May, and it forecasts a 7.75 to 7 used car market, 9 million in 2022.
Plummer said it would make for a good year for retailers.
“What we’re seeing are very high levels of consumer demand, with leads up 30% year over year,” he said.
“We don’t believe the market’s performance is the result of a bubble. This would suggest that there are trends that are not sustainable. That’s not the case here. There is no bubble to burst. High values and strong demand will continue into 2022.”
CONSUMER DEMAND
Respondents to AM’s Outlook 2022 survey were inclined to agree with Plummer, with 40.4% disagreeing or strongly disagreeing that a lack of consumer demand would negatively impact profitability next year.
While 29.8% were unsure, 29.8% agreed or strongly agreed that this would be the case, their reasoning may have been influenced by customer reactions to increasing delays. longer, as the supply of vehicles continues to be limited.
Nearly a third (36.2%) of responding retailers expect new car orders to remain unchanged, with the second largest group (23.4%) expecting a slight increase in orders.
Steve Young, chief executive of ICDP, believes the stranded vehicle supply will test customers’ patience as brand loyalty will disappear in 2022, paving the way for some OEMs to gain market share. Marlet.
Young said: “The recovery (of vehicle supply in 2022) will be uneven, and some brands may gain share at the expense of others who are still constrained, as some customers lose patience with the long lead times announced.
“Why wait more than a year for a car that you might only plan to keep for three years anyway?”
Uncertainty surrounds the potential impact of COVID-19 on trade in 2022. With the timing of the survey coinciding with the emergence of the Omicron variant in the UK, just over 34% said they knew whether the virus would impact their business.*
Less than a third (31.92%) felt it would not have a negative impact, while just over 34% feared it would have a negative impact.
Considering all factors, 12.7% of business leaders surveyed said they expected a significant boost in profitability after the “tailwinds” that propelled many of them to record performance in 2021, 21.3% expecting a “small” increase.
But 34% expect a “small” drop in profitability, while 14.9% expect a major drop.
Neil Addley, founder and managing director of AM research partner JudgeService, suggested that many of the survey responses could be driven as much by attitude as by hard evidence.
“The results reflect anecdotal market evidence – some see a land of opportunity, others are more concerned about supply issues,” he said.
“I suspect it’s as much a question of attitude as anything else. It’s good to see that the electric dream comes with a commitment to using technology and an increase, albeit a modest one, in employment.
DIGITAL OFFER
Despite a surge in online retailer engagement, driven by COVID-19-related trade restrictions in 2020 and early 2021, technology will continue to attract investment by 63.8% of respondents investigation.
AM found that 68% of businesses now offer an end-to-end online car retail solution, 80.9% use live video to sell cars, and 78.7% provide door-to-door delivery.
Young said the likelihood of 2022 providing increased consolidation in the OEM and franchise retail space – as well as the potential for additional formulation of agency model retail contracts after the new regulations are clarified. block exemption in May – will increase the need for smaller retailers to increase their digital capabilities.
He said: “Smaller players may well be able to offer a more personal touch, but more and more interactions are taking place in the digital space or relying on more accessible tools at scale. So even the smallest players must find ways to gain “virtual scale” through collaboration or purchased services. »
Young added, “We still see the brick-and-mortar dealership or used car outlet remaining a central part of the business.
“However, all players will need to develop and improve their digital offering on an ongoing basis – this is not work you can just tick a box and leave for a few years.”
*Note: AM’s Outlook 2022 survey predates the government’s introduction of Plan B.
