Growing pressure on margins drives even greater focus on stock turn

There’s never a dull day in this industry. It's been a challenging first half of the year for many retailers whether that's softening sales or increasing costs, with some key trends emerging that will continue to shape the sector during the remainder of 2024 and beyond.

Supply improves but fresh challenges ahead for new car retailers

When we asked buyers about their budget for their next car, we found that budgets haven't increased at all since 2022, even though prices of many new cars have climbed by 35% over the last five years. It’s no surprise, therefore, that consumers are either downsizing or turning to alternative routes of securing a new car. For example, Motability now has a 19% market share, some of which has been driven by the relaxing of the eligibility criteria, and this trend is putting a further squeeze on retailer margins. 

In the first six months of 2024, consumer demand for new cars has also suffered in part due to high interest rates and ongoing cost of living concerns. This is evidenced by our own research, which showed that one in three consumers were put off buying a new car in the last six months. 57% said this was because “prices are too high,” while 36% said it was due to “being concerned about spending too much while there are so many pressures on personal finances.” We've also seen a decline in the percentage of car buyers exclusively planning to buy new - down from 28% last year to 22% in 2024. 

Looking at the retail market on Carwow, the restoration of new car supply, coupled with a challenging macroeconomic backdrop, has led to increased advertising spend from OEMs to help drive retail demand. This has coincided with increased discounting and tactical offers with overall discounts increasing by 20.6% since the turn of the year. We’re also seeing increased OEM deposit contributions (up from 3.5% in January to 4.1% in July) and retailer deposit contributions (up from 4.1% to 4.3% over the same period). 

In terms of the most popular new makes and models on Carwow, the Kia Sportage retained its title as Carwow’s most configured car (64,493 configuration) and was also the top-selling car in the first half of the year. That was followed by the Renault Clio (40,435 configurations), while the Tesla Model Y retained its third spot (40,122). The Volvo XC40 and Hyundai Tucson completed the top five with 33,590 and 33,141 configurations, respectively. While the Volkswagen T-Roc shot up 10 places to cement its position as a more affordable small-SUV.

During 2024, the Zero Emission Vehicle (ZEV) penalty will require at least 22% of a manufacturer’s new sales to be battery electric vehicles (BEVs) or other emission-free vehicles. This is a supply-focused initiative, which does nothing to foster demand. With a new government in place, it will be interesting to see which incentives, if any, will be introduced to help encourage more consumers into EVs, alongside pricing and OEM contributions, to help OEMs and retailers meet their targets. 

Tesla unsurprisingly dominated the list of most configured EVs in the first half of the year given the discounts offered, with the Model Y topping the list (40,122), a significant share ahead of the MG 4 with 26,440 configurations and the Tesla Model 3 rounding up the top three with 23,501. The Volvo EX30 (+1,847% configurations year-on-year) and Polestar 2 (+194% configurations) completed the top five.

Given that looming pressure on EV sales, in the second half of 2024 we’re already seeing further increased media spend from OEMs to stimulate retail demand, coupled with increased collaboration with retailers and marketplaces to quickly accelerate sales. With the September plate change just around the corner, we’re already seeing an increase in OEM deposit contributions for new EVs, up from 1.4% in July 2023 to 3.8% in July 2024. 

What’s more, there is immense pressure on Chinese OEMs to break into Europe, due to the saturation of their own market. It will take time for them to achieve significant UK market share, some never will. But following BYD’s headline sponsorship of Euro 2024, we saw awareness of the brand among Carwow shoppers increase from 28% pre-tournament to 46% post-tournament. The BYD Seal saw the biggest leap in interest, with a 54% increase in visits to its review page, while enquiries for BYD overall jumped by 57%. Despite potential tariffs on Chinese brands announced by the EU, BYD’s high-quality products, robust global supply chain and heavy-hitting marketing investments are certain to see it continue to make ground in the UK market. 

Harnessing demand in the used car market  

The impact of the new car market on the used market has never been so apparent. Retail demand for new cars has weakened, and 53% of Carwow customers say they are currently only considering used cars. But the constrained supply of one-to-five-year-old stock is forcing many retailers to explore alternative profiles and sources of stock. 

Historically, large independent retailers have worked to tighter margins and higher volumes, but we're seeing franchise businesses now having to take a similar approach, which is having a clear knock-on effect to the supermarket model. 

We’re also seeing the ever-accelerating shift towards consumers completing more of their car-changing journey online, and this is also evident in the way they choose to sell their cars. Our research shows that 58% now value their car exclusively online. We’ve seen a 197% year-on-year increase in consumer valuations for their cars on Carwow, with Q3 forecasted to be the biggest so far. 

That shift in behaviour is also driving more stock to our online auctions, with daily listings up 58%, year-on-year to ~20,000 a month. The profile of stock is also changing, with average mileage per car sold down 11.5% and average age down 5.8%, year-on-year. Despite around 40% of retailers' stock being acquired through part-exchange, 80% of retailers we surveyed have increased their buying from online auctions in the last year to help them acquire more varied stock to plug the gaps in demand. 

Interestingly, of all the used cars advertised by retailers on Carwow in H1 this year, just 6% of them were EVs, yet those EVs represented 11% of all used car enquiries, demonstrating a clear gap in supply and demand. So far this year, a total of 107,772 used vehicles have been listed via Carwow auctions, of which 4,254 were EVs. They were also the potentially most profitable fuel type when working retail-back, with EVs offering potential margins of £3,013, followed by petrol (£2,205) and diesel (£2,086). While demand for new EVs remains problematic, used EVs represent an accessible stepping stone for many consumers. For the most proactive retailers, the opportunity to win with used EVs is clear. 

The smartest retailers are also leveraging increasingly sophisticated strategies and technology to increase their stock turn. Many retailers we speak to are scrutinising all of their processes to improve speed and efficiency to reduce costs more than ever, and we’re innovating in that space as well to better support retailers. 

Part of the attraction of the transport services offered by Carwow is that they reduce the administrative burden for retailers and get stock onto site faster. With a built-in Assured Scheme, retailers are protected against financial loss due to certain undisclosed issues. We’re also piloting a service that takes the stock retailers' win from our daily auctions, and then instantly advertises it to retail on Carwow, using A.I. to apply a professional finish to the photos from its auction listing. Crucially, this allows the retailer to generate leads whilst it’s in-transit to secure a faster sale. 

Leveraging partnerships for success

As we move towards 2025, we need to explore how best to collectively boost EV sales. With our new government in power, we can hope for new incentives that give retailers - including independents - more incentive to think EV first, as well as bolster confidence among consumers. We could also see manufacturers pulling back on ICE production quotas for the UK to throttle ICE sales and drive EV sales to meet the 22% ZEV target. 

The rise of Chinese brands will not fade, despite the recent potential EU tariffs. Chinese OEMs are renowned for being incredibly flexible and progressive in their strategic planning, and they are happy to play the long game. They’re leaders in EV technology, and consumer awareness of their brands and products is growing, for BYD in particular. If they remain the more affordable option, car buyers will increasingly be happy to make the switch knowing they’re getting more value for money. 

It is clear that making the shift to EVs, in volume, will require a leap of faith - for retailers as well as for consumers. The composition of the UK car parc is changing right in front of us, and the data proves the retail rewards are there for the taking. With the right marketing and stock sourcing strategies, coupled with digital tools that can showcase new and used EV stock to achieve rapid turnaround, retailers can unlock the impressive margins that are now available.

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