Chris Farnell takes a look at the vehicle remarketing sector, the unique challenges it presents, and the rapid changes it is undergoing in a period of market upheaval and uncertainty
Talking to the various figures in vehicle remarketing, there is a range of opinions about the sector. However, there is one thing on which everyone can agree: it is never boring. “It is very dynamic and constantly balances the demand from buyers with the supply of vendors,” says Martin Potter, group operations director for Aston Barclay.
“The car finance sector is a rich source of stock for the remarketing sector in that it supplies a great mix of cars, from voluntary terminations to ex-PCP and PCH stock and higher-value cars. The remarketing sector can often influence the profitability of selling ex-finance stock – get your reserve sale price and vehicle condition correct when sending it to auction and ultimately you benefit with higher residual values.”
“Obviously, in vehicle remarketing we’re at the end of the process – and the end of the process that can often be challenging in terms of where the vehicle has been terminated, whether it’s a repossession or a voluntary termination,” explains Roger Evans, sales and marketing director at G3 Remarketing.
“So, we do sometimes get involved with people in difficult circumstances. We have worked with repossession agents who can have difficulty finding vehicles on behalf of finance customers, and when we get vehicles back it often hasn’t got the necessary paperwork. So, in the finance world, we’re the people who pick up the pieces and make the best of a bad lot.”
It is also an area of the market that is rapidly evolving as technology improves and customer expectations rise.
“In many respects, Aston Barclay is mirroring the car finance market in that it is making better use of digital technology such as Apps that are downloadable free to a smart phone or tablet in response to customer needs,” Potter says.
“More used car buyers than ever use their smartphone to run their business, which is why we launched the Buyer App to help them source and bid on stock wherever they are in the world. Likewise, the Vendor App enables vendors to run their used car auctions from their smartphone, but still with the power to talk to the auction remotely and answer buyer questions and accept provisional bids to optimise sale conversion rates.”
Overall, the market has been performing well, even as the challenges inherent in the sector are still present.
Reflecting on some of the recurring challenges in vehicle remarketing, Evans notes: “The market for used cars has been very strong generally speaking. Obviously, vehicles come in all shapes and sizes and depending on whether they’re normal end-of-life or terminated midlife, you get them coming back in all sorts of conditions with no keys, no service history, etc.
“Buyers tend to want an understanding of who the finance customer is, and some finance vendors will have a better following because buyers will know who they are. We try to mitigate that by pulling out all the stops to get additional keys, try to take some of the gritty aspects out of it, and go to extraordinary lengths to try and find service histories.”
Challenges aside, however, demand in the market is strong, especially as many customers are moving into the used car market away from new cars.
“The general demand for used cars across all sectors of the used market during 2018 has been strong. While new car sales have fallen during 2018, used car demand and sales have continued to grow,” Potter says.
“Used prices of late and low stock have risen by £287 from October 2017 to October 2018, while ex-fleet stock has risen by £447 to £10,177 in the same period, an increase
of 4.4%. Used diesel stock, in particular, is performing very well when compared with a fall of over 40% in the new market, while a growing number of plug-in hybrids and electric vehicles are starting to reach the market.”
He continues: “Reaction in the used market has continued to grow during 2018 with average prices rising from £11,365 in the fourth quarter of 2017 to £13,073 in the third quarter of 2018, a rise of £1,708.”
Philip Nothard, customer insight and strategy director for Cox Automotive UK, has also seen the used car market performing well in comparison to its new car counterpart.
“The well-publicised challenges facing the new car market, with registrations in steep decline, has caused pressures in the dealer part-exchange and lease or contract hire volumes,” he points out.
“The outlook for the used car market, though, looks strong in comparison, and we expect the market to exceed 8 million used vehicle transactions – as referenced in our new Cox Automotive Insight Report – in 2018.”
Nothard continues: “We are seeing a growing appetite among dealers to both invest and place increased focus on their used cars operations, which is creating a strong supply and demand market throughout the year and into 2019.”
However, at the same time, Nothard urges caution, saying: “2018 has been a year of significant change, and these have been challenging times for the UK automotive industry with the ongoing impact of Dieselgate and the continued uncertainty caused by Brexit.”
Retailers are coming under increasing pressure to retain margins and maximise profitability to achieve the best returns on their investment, and as Nothard points out, the key to this is stock.
“Having the right stock for the customer remains the biggest challenge to any retailer, especially with the strength of demand that we are currently seeing in the used car market,” he says.
Potter also points to difficulties in finding new stock, especially with the advent of the Worldwide Harmonized Light Vehicles Test Procedure (WLTP), designed to monitor the pollutants that cars emit.
“The most immediate challenge is the impact of WLTP on the overall market. Many car makers have experienced delays in being able to build new cars based on the introduction of the new WLTP legislation in September, which has meant dealers have been unable to sell some new models. Fleets, meanwhile, have had to extend their leasing contracts as new cars have not been available to order,” Potter points out.
“The impact is that more franchised dealers are buying nearly-new and ex-fleet used cars to sell to those consumers who do not want to wait a few months for their new car. This has reduced stocking days of used cars in the late and low, and fleet sectors by 4 days and 1.6 days respectively.”
Potter continues: “The contract-extension challenge experienced by leasing companies has also seen a slight fall in the number of exfleet cars coming back into the used market, which in turn should help keep demand and prices healthy well into quarter-one 2019. It is compliant for the finance house to offer a used vehicle in an open competitive environment, where physical auction provides such a valuable service to the sector.”
Aston Barclay demonstrates a number of ways in which businesses can respond to these challenges, including offering more refurbishment services across their network of physical auctions.
“Currently, investing £185 in improving the condition of a Grade 4 car through refurbishment and smart repair to upgrade it into a Grade 3 car can give vendors an uplift in prices of £264,” Potter points out.
“We are also focusing on speed of collection to get vendors’ cars into auction quickly to meet the current high demand and strong prices via our own fleet of vehicle transporters.”
“Cosmetic factors are really the key to getting a vehicle ‘retail ready’, and in the wholesale market, taking a vehicle from Grade 3 to Grade 1 can improve the margin by an average £470, and reduce selling days by six,” Nothard agrees.
“For example, assessing the need for wheel refurbishment and smart repairs, and then arranging these promptly, can make a big difference to a retailer when it comes to days in stock.”
Aston Barclay has also been collating and sharing its insights to provide a more accurate picture of the market, as Potter points out, “We have also published our Market Insights report that looks at how the used market is changing in September and October 2018 compared to earlier this year and this time last year. We then share this with vendor customers and look at ways of addressing challenges, reducing their risk and optimising the speed and price of used cars currently going through auction.”
Another area where the vehicle remarketing sector is facing new challenges is the digital realm, with companies having to take a long hard look at the tools and options they provide for their customers.
This is becoming more important not only because of rapidly improving technologies, but also because of the rising prominence of customers buying used vehicles over long distances.
“Investing and embracing digital technologies will remain important for retailers who want to stay at the cutting edge of the industry,” Nothard says.
“Consumers have access to more information at the touch of a button about cars than ever before, and this will continue to grow. Successful retailers will embrace new technology and seek new innovative ways to do business. Business success today requires being truly agile: from use of data and insight to drive decision making, right through to complete market transformation and embracing new and innovative ways of doing business.”
Evans agrees, adding: “Customer expectations have gone up massively over the last few years, and so has the product innovation that people are looking for. If you’re not offering something you’re at a significant disadvantage, technology-wise.
“We’re investing to give people something fresh and innovative while providing clarity and visibility. Innovation is required every step of the way; everything requires new ways of thinking.”
G3 Remarketing has responded by offering high-definition video inspections and video 360 images on a turntable at quality levels that can compete with most retailers.
“The quality of inspection that people expect has risen. It’s no good just taking a picture in the car park anymore,” Evans says simply.
“Buyers are becoming more discerning – distance buyers especially, and distance buyers are important.
“We need the confidence of an assured report. The trust of buyers has changed, while it’s often thought used car buyers are creatures of habit, their expectations have been raised by the innovation in the industry. Everyone wants a 360 image, the slickest website.”
Cox Automotive has also been taking steps to ensure it remains competitive on the digital front.
“Quality imagery is more important than ever before when it comes to selling a vehicle, and that applies in both wholesale and retail. Digital retailing is becoming far more commonplace, and high-quality imagery can dramatically increase a consumer’s desire to buy,” Nothard says.
“We can expect to see more businesses using 360 image functionalities, giving customers a full view of the vehicles interior and exterior. This is a fast-moving, highly innovative area – and will continue at a pace. Increased levels of transparency are demanded, with retailers expected to provide honest descriptions about vehicle condition and the provenance of a vehicle.”
“At Aston Barclay we will continue to revolutionise the remarketing industry in bridging the gap between the digital space and physical auction to respond to the ever-changing needs of our buyer and vendor customers,” Potter agrees.
“We will continue to roll out more digital technologies. This includes a new online inspection app and another that combines inspection and valuation to enable the consumer to carry out their own inspection prior to visiting a dealer to speed up the tradein process – this gives the consumer extra confidence when approaching the dealership, which should lead to a cleaner and quicker trade-in transaction for the dealer.”
He adds: “We are also working on a new vendor profitability calculator which will provide real-time information to help them manage their stock more proactively, including when accepting provisional bids and setting initial reserves.”
With increased market consolidation and a remarkable rate of improvement in the digital and technological aspects of the business, one thing that is clear is that vehicle remarketing is a sector to keep an eye on, and one where only the most adaptable and responsive businesses will thrive.
“Vehicle remarketing is one of those industries that was effectively just bumbling along, but over the last four or five years it has been supercharged by investment and consolidation in the sector, which has pushed those that remain into a very dynamic creative phase in order to keep up,” Evans says. “If you’re not running at Mo Farah levels of speed, you’re standing still.”