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January 12, 2022

Margin retention ‘key for retailers’ as supply chain problems continue

By Chris Lemmon

Retailers must focus on margin retention and profit, as supply chain shortages are unlikely to ease until later this year, says Cox Automotive.

According to Philip Nothard, insight and strategy director at Cox Automotive, retailers continue to report healthy trading results by maximising unit profitability over volume and benefiting from stable consumer demand for used vehicles.

Wholesale demand continues to reflect the healthy retail sector, with an appetite for quality used vehicles, while days to sell and stocking levels remain low. As such, retailers are less likely to offer discounts because demand looks likely to outstrip supply of vehicles for some time.

Cox Automotive has strongly indicated that the automotive sector will not return to pre-Covid norms at any point throughout the next 12 months, with the semiconductor shortage cloud still hanging over the market. Cox also predicts that used car values are unlikely to rise at the rate experienced in 2021 or fall at the rate observed in pre-pandemic times.

Looking back on 2021, the average sale price at auction increasing by 3.9% or £255 to £6,731 compared to the previous year. Nothard said: “A small increase in the overall average price paid for a used car in 2021 might not alarm many, but wholesalers and retailers are having to work harder to sell older, higher mileage cars. Both traders and consumers know that due to the lack of supply, they’re having to pay higher prices for cars that are less desirable because they’re older.”

In November 2021, Cox Automotive published its new car sales figures forecast in its annual Insight Report. Within it, the company gave its best, mid, and worst-case scenarios for new car registrations that year. As predicted, the most likely mid-case scenario proved to be the most reliable, at 1,631,746 vehicles. This represented a +/-0.9% accuracy forecast difference to the actual data published by the SMMT.

Writing about the full-year performance in the latest AutoFocus, Nothard said: “Two of the major trends – electrification and semiconductor shortages – are likely to continue to impact the new car market in the UK in the short to medium-term. In addition, the ongoing impact of COVID-19, uncertainty surrounding Brexit, and continued supply shortages looms large, and it may take longer than anticipated for the market to recover from this as quickly as hoped.

“But in the short term, we anticipate a continuation of the current market conditions, with some uplift in supply helping to drive sales as we progress through Q1 2022.”

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