Market Report from BCA
The annual Used Car Market Report from BCA is in its 18th year
of publication, and presents a mixed picture of the health of the
sector. On one hand, the volume of used car sales fell last year,
to 7.1m units (2006: 7.5m units). However, as BCA points out, the
value of those 7.1m sales was £33.3bn – admittedly down on 2006’s
figure of £33.9bn, but still the second-highest annual figure ever
recorded. As BCA communications director Tony Gannon says: “There
is a deep-seated resilience in the used car market, even when times
are hard.”
Dealers – both franchised and independent – retained the lion’s
share of the total value of used car sales, capturing 77 per cent
of all sales by value, equivalent to £25.7bn. Further helping
dealers was the fact that the average sales price of a used car
sold through a retail outlet was £6,464, up £198 year on year –
although whether this rise will survive throughout 2008 is
doubtful.
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The finance opportunity
Report author Professor Peter Cooke emphasises the need for readily
available point-of-sale finance in the context of used car sales:
“In the same way that the alternative to buying a new luxury car
may be a holiday home or a yacht, so at the more modest level of a
used car, there are high-value consumer and sports goods that may
be equally tempting to buy – thereby raising the importance of used
car finance.”
The unfolding credit crunch has made its mark, too. “Given the
growth and uncertain extent of the credit crunch, readily available
finance for prospective car buyers will become increasingly
important. The ability to provide funds may be a real deal maker,”
Cooke says.
In response to the credit crunch, some carbuyers, however, may
prefer to switch to paying with cash as a way to avoid further
debt; others may look to longer loan terms to reduce monthly
payments (see table 1). But with two out of five respondents
holding “no firm views how they might be affected by the credit
crunch”, it seems there is as yet no clear picture on how used car
buyers will respond to the turbulence in credit markets.
Table 1: Could the current credit crunch and economic
uncertainty influence your decision on changing your
car?
% of respondents
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12
Buy car with lower insurance premium
9
Buy a lower-priced model
9
Negotiate harder for best deal
8
Buy car privately
8
Postpone replacement
short-term 7
Look for low rate finance
6
Sell car privately (get higher trade-in price)
5
Look at dealers further afield for best deal
5
Shop widely for cheapest finance source
4
Postpone replacement indefinitely
4
Buy at auction
3
Buy from Internet used car site
2
Dispose of car (not replace)
2
Longer loan period (lower payments)
2
Don’t know
6
None of these
36
Source: BCA
Age stratification
When selling used car point-of-sale finance, age should be a key
factor to consider, as the age profile of used car buyers has moved
in favour of older buyers (see graph 1). For example, in 1997,
buyers of used cars aged 55 or older made up around 17.5 per cent
of the total; a decade later, that proportion had increased to over
25 per cent. “The key issue is that the population is ageing – and
older people are growing buyers of used cars,” Cooke says.
Meanwhile, the share taken by the 25-34 age group has fallen
dramatically, from around a third of the used car market in 1996 to
24.1 per cent in 2007, with only 1.7m units sold to this age band
in 2007 compared with 2.5m in 1996. “These are longer-term, steady
trends that justify franchised and non-franchised used car dealers’
serious attention,” Cooke notes.
The report hammers home the point that used car finance
sales strategy must take into account these shifts in age
stratification among consumers. Car owners in the 25-44 year age
group are likelier to shop widely for the cheapest finance source,
for example, Cooke reports.
Meanwhile. there is plenty of scope for dealers and their finance
partners to think carefully about possible additional revenue that
can be generated through sales of insurance products that give
peace of mind to older consumers. “With older age groups for
example, the opportunity to include or sell extended warranty
products or service packages may be attractive, which might be much
less interesting to younger buyers. The older generation may also
be more focused on reliability and known cost than younger buyers,”
Cooke points out.
With the credit crunch likely to hit new car sales hard, retailers
and their finance partners must look to used car sales – and the
finance opportunities that go with them – to shore up
profitability. Cooke says: “During the last serious downturn in the
early 1990s, used car volumes held up much better than new car
volumes, which slumped by well over half a million units.
“The economic downturn might encourage more traditional new car
buyers either to trade down to a smaller new car, or buy a quality
used car instead of a new one.”
For more information on the BCA Used Car Market report, contact
Tim Naylor, tnaylor@bca-europe.com
