How diesel, Brexit and WLTP impacted new and used cars

The new car market was hit by a triple whammy in 2018 with diesel under the cosh, WLTP creating havoc with the new car supply chain and Brexit breeding fear and confusion in equal measures with the threat of tariffs and a potential economic downturn.

The damage caused by WLTP is ongoing. Some carmakers unloaded their non compliant stock ahead of the September introduction of the new legislation. Others were caught short and found registrations badly hit in the final quarter of 2019.

For many the damage is ongoing. Group 1 recently told analysts that it expected its Audi sales in the UK will be back on track by “mid-year” following the fall-out from WLTP.
All parties have worked to deal with the problem.

Dealers have received advice from carmakers and the National Franchised Dealers Association (NFDA) for instance has partnered with the Low Carbon Vehicle Partnership (LowCVP) to educate consumers about WLTP and deal with the issue in showrooms.

They have produced a leaflet which is being distributed to NFDA’s franchised retailer members across the UK. The aim of the leaflet is to show consumers that WLTP’s more sophisticated testing techniques and its more accurate emission figures can help consumers choose the right car.

WLTP has also had an impact on fleet, which is impacting the used car market. Adesa Remarketing, which handles thousands of fleet cars, believes businesses are now likely to run existing vehicles longer, resulting in older and higher mileages cars being de-fleeted to the dealer wholesale market in 2019.

Diesel has also come under intense pressure over the past two years. Registrations of diesel cars fell 30% in 2018 as buyers moved to petrol and AFV alternatives. Searches for diesel cars in January on Auto Trader fell to an all-time low, accounting for just 45% of searches by fuel type.

It follows two years of steady decline for diesel searches from a high of 71% of all fuel related searches in November 2016. In contrast, petrol has slowly increased from 26% during the same period to 48% in January.

But that is not to overstate the case. There is still huge demand for the right vehicles.

The latest data from Auto Trader on the fastest selling used cars in February shows diesel taking half of the top 10 places in the listing. Featured diesel cars included the Seat Ibiza, Mazda CX-5, Mercedes-Benz GLC (2016 and 2018 cars) and the Vauxhall Mokka. For the record, the fastest selling car was, in fact, the petrol Renault Kadjar, which sold in just 17 days.

The third issue to impact the car sector was Brexit. It has distorted the market with carmakers expected to make a big push on sales in March ahead of the Brexit deadline. Hard exit or no exit, carmakers are being pragmatic.

Peugeot is one example of a brand which has moved to bring in 25% more stock and aims to deliver a strong performance in Q1 to pre-empt any tariffs for a no deal exit. Peugeot UK managing director David Peel told Motor Trader PSA had prioritised production at plants to be funneled into Britain for Q1.

Brexit, diesel and WLTP have not impacted the used car market in the same way as new. The used market is so much bigger, it’s more stable and trends take longer to become established. For the larger and specialist car dealers the market has been strong but smaller players are being caught in a pincer movement between franchised dealers and the big supermarkets, both hoovering up large volumes of good stock at auction.

And they are making money. The average motor retailer produced a profit of £9,000 in January, a 50% improvement on January last year, according to the latest profitability figures from ASE. Much of this was due to used cars. ASE chairman Mike Jones commented on the increase in investment in used cars as dealers sought to boost their bottom line.

“January saw a rise in the level of used vehicle stock investment, a trend which was very prevalent in the second half of 2018. It appears to reflect the continued focus on profitable used retailing in the face of a depressed new car market.” He said aftersales and used cars were potential winners for dealers.

“These remain a significant opportunity for businesses, with gross profits from both areas continuing to rise year-on-year. Whilst new
cars and Brexit will provide the headlines, used cars and aftersales remain the star performers,” he said.

This is reflected in the investment dealers have made and continue
to make in their used cars businesses. Sytner invested heavily in its used car business through its acquisition of Car Shop and The Car People. Pendragon is rolling outs its network of Car Stores. And Arnold Clark now has more than 30 Motor Stores. Recent announcements on expansion include Bolton and Wolverhampton.

But, after all this growth, the market may be on the turn. Stuart Foulds, the current CEO of TrustFord and the former boss of Pendragon’s volume Evans Halshaw business, has warned of potential overcapacity in the market with franchised dealers and the big supermarkets competing for stock. There have certainly been warnings about the difficulty in sourcing the right stock and of a narrowing of the gap between retail and wholesale used car prices.

At wholesale level, used car values fell 0.6% in February, the first downward movement of used car values in the month since 2008.

The executive sector was hardest hit, dropping by an average of between 1.5% and 2.1%. SUVs and MPVs also fell in value by more than the average, both by 0.8%. Cap hpi said that prices were high and dealers, while keen to purchase at auction, were reluctant to pay more for cars, due to the pressure that this puts on retail margins.

So there you have it. The new car market has been hit by Brexit, WLTP and the backlash against diesel while the much bigger and inherently more stable used car market has proven to be a profit centre for many (but certainly not all) dealers. That said we have seen the first warnings on overcapacity with too many big outlets chasing a finite supply of good stock.