As the UK motor industry recovers from the pandemic, we explore the trends that could shape the future of the sector, for manufacturers, dealers and customers alike.
It’s been a tumultuous few years for the automotive industry. Just as it began to emerge from the long shadow of the pandemic – sluggish demand, low inventory, worldwide semi-conductor shortages – it’s been buffeted by the cost-of-living crisis (hello global sales slump, high inflation and stubbornly high prices), and the current fragile geo-political climate is adding to a lingering climate of uncertainty. But finally, some good news: car sales are cautiously on the rise in the UK.
New and used car sales both on the up
In October 2023 new car sales at last exceeded pre-pandemic sales figures, despite regulatory change and uncertainty surrounding the UK’s electric vehicle (EV) transition. Used car sales remain less buoyant, however, with the sector still to achieve pre-pandemic numbers; they currently sit at 9.3% below 2019 levels, although Q3 2023 sales are up 5.5% on weak 2022 sales volumes.
Yet the used car sector has reasons to be cheerful. Sales of second-hand battery powered electric vehicles (BEVs) have grown by a whopping 99.9% over the past three months, accounting for 1.8% market share. This growth is the third consecutive (and highest quarterly) growth of the year, reflecting sustained buoyancy in the new car market and increased availability of stock; a welcome ease in recent supply chain disruptions and a good indicator that the used car market will continue its upward trajectory.
How can this momentum be maintained and sustained in an uncertain climate? Here we’ll explore what dealers can do to stay on top in a changing world.
Trends in the automotive industry: ones to watch
Before we bask in the changing fortunes of the used car sales sector, let’s first take a look at some of the existing and forthcoming automotive trends that may help to shape the future of the industry as a whole and encourage buyers to keep buying.
Hydrogen powered cars
Fuel cell electric vehicles (FCEVs) offer an attractive alternative to BEVs. Rather than relying on a battery, like traditional BEVs, they are powered by an internal fuel-cell stack that generates electricity by combining hydrogen and oxygen. Water is the only byproduct, which means zero emissions, making hydrogen-powered vehicles the cleanest on the roads; they have a similar range to ICE vehicles (300-400 miles per tank) and are incredibly quick and easy to refuel (no need to charge).
The concept of hydrogen fuelled cars is not new – car makers have been experimenting with this technology for decades. Although only a handful of manufacturers sell FCEVs in the UK today (BMW, Hyundai and Toyota), some analysts project the market to grow at a CAGR of almost 70% through 2026.
The catch? And it’s a big one: there are currently only around 15 hydrogen fuel stations in the UK. Fewer than 500 hydrogen powered cars have been registered in the UK over the last ten years, and there are only 26,000 registered globally. Significant infrastructure investment is needed if these cars are to take off in any meaningful way. Yet the Hydrogen Council predicts that there could be up to 13 million fuel cell vehicles on the road by 2030. An ambitious prediction perhaps, but one that reflects the huge potential of this technology.
Demand for used electric cars is growing
In the meantime, demand for second-hand BEVs is on the rise. Motorists are turning to them in ever greater numbers, despite the government delaying the ban on new petrol and diesel car sales from 2030 to 2035. As we have seen, the used BEV market is gradually starting to climb, with the market doubling in Q3 thanks to an increase in supply. Plug in hybrids (PHEVs) and hybrid electric vehicles (HEVs) are also selling well, with market share increasing by 34.6% and 45.4% respectively over the same period.
The catch? Range anxiety, insufficient infrastructure (location and availability of charging stations continue to be an issue), and, of course, price. Although EVs are significantly cheaper to run than combustion engine cars, many would-be consumers are simply unable to afford the purchase price.
The rise of the connected car (the Internet of Things)
A connected car is one that can access the cloud (the internet) via its own inbuilt connectivity system. These ‘smart’ cars are equipped with infotainment systems, GPS navigation, driver assistance and communication tools that allow the vehicle to send and receive data in real time. Growth in this developing area is being driven by the widespread adoption of 5G technology and cars are expected to become ever more connected as the technology progresses. This is likely to result in greater safety features, predictive maintenance and even payment capabilities – essentially, cars will become drivable connected devices. Last year the automotive IoT market grew by over 14%, which clearly shows the demand there is for increased connectivity in motoring.
The catch? Data privacy, significant cybersecurity concerns and regulatory compliance, not to mention serious infrastructure development. To fully realise the potential of connected cars, major investment in each of these areas is required.
Buying trends in the automotive industry
Car buying behaviour was completely turned on its head by the Covid pandemic, and buying a car online is now as commonplace as mobile banking. Before Covid, only 4.2% of sales took place online whereas today, according to Autotrader, 42% of buyers are only too happy to buy a car online without seeing it in person.
That’s not to say that buying a car from a dealer in the traditional way via a showroom should be discouraged – far from it – but with over 90% of buyers doing their research online before making a purchase, it’s vital for bricks-and-mortar dealers to have a proactive online presence, too.
Personalised video content
Video content and personalisation is hugely valuable when it comes to capturing and retaining the attention of car buyers, with 43% of consumers more likely to buy after watching a video. Personalised video content is particularly helpful for used car buyers, for whom trust and transparency is so important.
AI technology has the potential to transform the creation and distribution of this kind of content, already enabling some dealers across Europe to market and sell cars more rapidly than before. We’ll watch this space with interest.
Online and on the shop floor: The best of both worlds
Research suggests that consumers are increasingly looking for a digital first experience alongside traditional in-person interactions with sales staff.
Catering for both those who prefer to buy in person and those who’d rather buy online will likely be the key to business success. Reinventing physical showrooms as ‘experience’ centres to enhance the customer journey, and incorporating sales strategies that involve both online and offline interactions with customers, will help dealers appeal to every type of buyer.
What will the challenges be for car dealers in 2024?
The demand for cars will always be there, but for now and for the next several months buyers are looking to spend less than they might have done previously. To manage their budgets consumers are searching for smaller, less expensive cars, and stock must reflect this. The £6,000-9,000 price point is likely to be a particularly competitive area. Good quality, affordable used cars are selling quickly, so price to the market and ensure you have the right stock that caters to all budgets.
Seasonal fluctuations impact profitability, and the Christmas lull came early in 2023, but consumer demand across all sectors of the second-hand car market is stronger than last year, suggesting brighter times ahead.
The changing landscape of regulatory compliance
In 2021, the FCA tightened up its commission disclosure rules: it’s now a legal requirement for consumer credit firms and broker firms to disclose any commission they receive from lenders.
Not only this, but all financial services firms must abide by the FCA’s new Consumer Duty, which came into force in July 2023. Consumer Duty are a set of new rules that enforce a higher standard of consumer protection within financial services. They are designed to ensure that customers receive appropriate support; clear, concise and timely communications; and that products and services meet customer needs while offering fair value.
Build regulatory compliance into your business model to ensure consumer confidence
Fall foul of these regulatory requirements and you can expect to pay a hefty price. It’s not enough to simply be aware of the rules; regulatory compliance must be a fundamental part of your business model if you are to keep abreast of new developments and grow customer trust.
ULEZ compliancy problematic for some
Elsewhere, the expansion of the Ultra Low Emission Zone (ULEZ) in London is causing various problems for dealers. Some are struggling to shift non-ULEZ compliant vehicles as demand within the zone dries up. Others, in greater London/commuter belt areas, are experiencing the opposite problem, finding it harder to sell ULEZ-compliant models as customers simply can’t afford them. Conversely, some dealers well outside the zone are enjoying robust sales of non-compliant cars. The takeaway? There is no one-size fits all strategy for dealing with ULEZ: trends are hyper localised. Keep a close eye on customer behaviour in your area and follow suit in terms of stock.
How dealers and manufacturers can stay on top
So how can dealers stay successful in an uncertain world? Offering good quality stock that caters to customer buying habits, alongside a solid customer experience, will help to ensure that dealers remain buoyant. Be sure, too, to stay on top of regulatory requirements.
With more investment in cleaner fuels and connected car technology underway, and in the necessary infrastructure to sustain it all, the future looks bright for the motor industry as a whole.
Value for money, comfort, longevity and low/no emissions remain key priorities for today’s car buyers, whatever the future may hold. As long as dealers can offer these things, alongside transparency and flexibility within the sales process – clear communication and excellent service with a focus on customer retention is crucial – then they will remain competitive. And with nine out of ten cars bought on finance, the more payment options vendors can offer, the better.
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