There is no disputing the fact that personal contract purchase deals have forced a shift in the UK motor industry. But which markets have benefitted, where have the biggest struggles been, and how will auction houses fare? Matt Dale, director of G3 Remarketing, shares his thoughts
“It will never work” was the widespread response to the suggestion that the American PCP model would make a transatlantic journey to the UK motor industry.
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After all, British people have long been renowned for their desire and preference to own their assets, whether we’re talking about cars, homes or white goods.
But such dismissiveness of PCP agreements now seems foolish because, years on, they have proven the catalyst to the complete reinvigoration of new car sales, with record numbers retailed in 2015 and 60% of those as a result of PCP agreements.
The sheer ‘affordability’ of a brand new – and otherwise very expensive – car, means drivers young and old now have access to what may be their dream vehicle, for only a few hundred pounds a month.
Gone are the days of expensive or unattainable loans, in favour of incredibly low-cost finance deals. More than 80% of Mercedes’ sales reportedly now take place via this sort of arrangement and the emergence of a seemingly habitual two-to-three-year buying cycle keeps demand for such new cars strong.
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By GlobalDataHowever, the robustness of this market has presented challenges elsewhere. While the industry has ridden on the crest of a wave for the past five years, the availability of attractive PCP deals, coupled with the volume of cars that require disposal at the end of the two-to-three-year term, has finally resulted in the depression of used car prices. This is particularly the case for higher-end brands such as BMW and Mercedes, but is equally apparent with Ford Fiestas for instance, which have sold well via PCP deals.
In the face of diminishing margins, many dealers have struggled to absorb their forecourt stock levels, at the same time as supporting manufacturers with their new car registrations.
Auctions have therefore been viewed as an appealing and cost-effective route to market, which is great for a brand like ours.
Yet I fear that the evolution of the remarketing sector could present further challenges for dealers moving forward. Independent auctions are becoming few and far between.
Three years ago British Car Auctions acquired We Buy Any Car, quickly followed by Manheim’s purchase of We Want Any Car. Smaller car-buying companies were subsequently also bought out.
As a result, prime selling slots are increasingly being allocated to the auction houses’ own stock, because they’re striving to maximise the return from the cars they themselves need to sell.
But this is to the detriment of other vendors and entirely at odds with what an auction should be – an independent remarketer. Where does this leave the dealers?
Thankfully there are still options in what is a constantly changing industry and not every auction has such a biased standpoint.
But organisations within every aspect of the motor trade need to ‘think savvy’ and remain fluid to thrive – and not just because of the PCP revolution.
