Car retailers in the UK will have to deal with increased competition and reduced margins as the market slows in line with the macroeconomic conditions, according to MHA head of automotive advisory Alastair Cassels.
Speaking at the Vehicle Remarketing Agency’s (VRA) annual general meeting Cassels said: “During the last few years, Government support during the pandemic and new car supply constraints have resulted in the most benign risk environment for car dealers of the last two decades.
“Retailers have enjoyed ‘super profits’ largely driven by appreciation in their used car inventories and ongoing new vehicle shortages.
“However, signs are emerging that the market is slowing in line with the macroeconomic conditions affecting the UK. We expect to see some distress in H2 2022 and into 2023 as economic conditions squeeze household disposable incomes and inflationary pressures drive vehicle pricing higher.”
By 2025, for a dealer selling 500 new cars every year gross profits could fall by around £500,000, he said adding that the retailer would also lose revenues from service due to falling segment one parc and electrification.
To offset these losses in revenue retailers would have to reduce operating costs worth £700,000 or sell 800 more used cars per annum.
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Cassels said: “This is what our forecast shows but how should retailers respond? They can increase revenues by investigating options such as multi-branding sales and services, and grow remarketing capability through leasing personal contract hire. They can also reduce costs by divesting secondary locations and automating more administration.”
The VRA’s annual general meeting also outlined that the next few years would be “highly challenging” but also “exciting”.
Earlier, INDICATA Market Watch insights’ latest report said that the UK is the only market in Europe where used car prices are falling.