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June 15, 2022

Shift to retail sales likely to exacerbate ongoing used car shortages

By Motor Finance

The used car shortage is likely to be exacerbated by major manufacturers steering sales of new cars towards more profitable private sales rather than fleet transactions, according to the Vehicle Remarketing Association (VRA).

In a press release, year-to-date figures show that fleet sales are down 25% on 2021 and private deals are up 17.8%, showing the significance of the shift that is taking place.

Philip Nothard, chair at the VRA, said: “To some extent, it makes sense for manufacturers to do this. New car supply is poor, and factors such as the ongoing semiconductor shortage and the war in Ukraine are unlikely to significantly improve any time soon. Car makers are simply maximising their profit potential.

“However, it is likely to distort the used car market to an even greater extent than we have seen over the last couple of years. Historically, fleets have provided a steady, almost clockwork supply of cars into the used sector, but this has fallen massively in recent years as new car production has declined since the start of the pandemic.

“In contrast, private buyers tend to hang onto their vehicles for a year or two more. The cars that they push into the used market when they get a new model tend to be older, and then they will keep hold of that for longer in turn. The vehicle life model that we have seen for decades, and which has served the used car with a predictable flow of stock no longer fully exists, and this will undoubtedly constrict future supply.”

Nothard added that there was also a possibility that fleets themselves would become used to operating cars over extended periods, which would also have an impact.

“Fleets have operated cars on 3 to 4-year cycles for decades, but the lack of new car supply together with the low mileage that many racked up during the pandemic means that they are hanging onto them for much longer, often into a fifth year.

Nothard asked: “The question for the used car market is whether fleets will return to their traditional kinds of cycles or stretch them in the future? There’s a strong chance that it is the latter, especially as widespread electrification takes hold. EVs are more expensive than ICE cars, so are more likely to be taken on for longer leases and can potentially also be operated for more extended periods without significant component failure.

“All of this means that the role of fleets within the used car market is shifting and perhaps permanently so in a manner that could reduce supply not just in the short-medium term but longer, too.”


VRA considers 2022 remarketing outlook in first webinar of the year

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