Garry Jones, chief executive of NovaFori, looks at the current state of the second-hand car industry.
Prices in the second-hand car market are rising and we are seeing a decline in actual sales, as would-be buyers are deterred from paying premiums for second-hand cars because they can often buy a new one for a cheaper price.
As a result, second-hand car dealers are having to change the way they think about restocking their inventory – with the rise of digital marketplaces an increasing phenomenon.
Supply shortages have plagued the UK auto market in 2021 – with an overall shortage of new and old cars. This has been exacerbated by the fact that British car output fell by an annual 41.4% in October 2021 to its lowest level since 1956 because of the global lack of semiconductor chips and plant closures in the sector. Research also suggests that the average price of a second-hand car increased by nearly £3,000 in just five months, from £13,973 in May to £16,878 in October – a direct result of such shortages.
With the rising demand and prices, traders haven’t been able to source vehicles in the most cost-efficient way. As a result, the industry has been driven to research and develop new digital tools to sell vehicles. Online marketplace technology is driving this transition in the second-hand car market, allowing for greater competition, liquidity, wider distribution networks and easier price discovery, alongside data-driven insights that benefit buyers, sellers, and marketplace owners alike.
Marketplace solutions transforming second-hand car market sales
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There are effective ways to mitigate the impact of supply shortages and price increases. Namely, by developing an online marketplace that provides both sellers and buyers with a transparent and efficient mechanism to transact cars.
Instead of being limited by a single supply of vehicles, the marketplace allows dealers to access an integrated inventory of thousands of vehicles, making it easier to browse and purchase vehicles that most suit their needs and get the best value for their money. If the reserve price of a car is met in the bidding process, the highest bidder normally takes the sale.
Deploying NovaFori’s data science applications to its marketplace, the marketplace can recommend vehicles based on historical buyer behaviour patterns. These recommendations can then be refined based on additional user actions on the platform, such as searches, substitutions and bids won, resulting in a bespoke experience for each customer.
The benefits of the marketplace technology solution are clear. NovaFori’s recommendation engine boosts the proportion of vehicles sold on the platform, with a significant increase observed in average sale prices. This technology can also be applied to other industry sectors such as insurance, IPv4 address trading, derivatives trading, art and antiques.
Sellers can also access a wider range of customers and secure higher trade volumes, which provides increased liquidity, and ultimately contributes to generating more revenue. Professional traders are able to bid on a wide variety of cars in 24 languages and across multiple countries in Europe. With a combination of cross-border trade and auction mechanisms, the marketplace can demonstrate that the highest price has been achieved across the portfolio.
Alongside added value from increased revenue generating opportunities, marketplace technology and machine learning functionality algorithms can be used as powerful tools for marketplace owners too. This is because they can decide on the right auction methodology to get the best price for a vehicle, based on a combination of past auction performance and predictive analytics.
Future of second-hand automotive sales is digital
As disruption from the pandemic continues, digitisation combined with the changing dynamics of the automotive sector, means there is a positive trajectory towards online automotive marketplaces which benefit sellers, marketplace owners and buyers alike. Car sales businesses that are willing to invest in automotive marketplaces will see themselves positioned well to reap the rewards of digital transformation.