Used Cars: Why is the market in decline?

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Bruno Camus

Bruno Camus is a Doctor in Management, Professor of Marketing at Kedge Business School. Author of several books published by Editions d’Organisation and academic articles, his research work is very focused on the automotive sector, for which he also works as a consultant.

For Autonews, he analyzes and decodes manufacturers’ strategies and sheds light on the complexity of their market and environment.

A challenging market

In France, in 2021 (Le Journal de l’Automobile), 6,016,435 used cars were sold, ie 3.6 sales for one in new vehicles. It is evident that Used Vehicles represent a significant volume of business with multiple challenges.

First of all, it is a way of acquiring vehicles that allows those who do not have the means to access new vehicles and satisfy their need for individual mobility. The choice is vast and the distribution channels are diverse and varied: fleet of dealers, specialized network (Aramis for example), independent professionals, agents, importers, individuals… The sector has considerably modernized in the last twenty years, improving quality of supply and services. Today, the used vehicle has practically the same level of warranty and the same forms of financing as the NV (New Vehicle), at least with professionals. This results in prices generally higher than those on the coast, but justified (in principle) by the costs of restoration and the guarantees offered. The handling of second-hand items is thus closer to the new, due to the care in the presentation (in the showroom) and in the reception of the customer. Gone are the days when used cars were relegated to a wasteland with plain posters and a hostile salesman. Let’s not talk about warranties until the garage door…

So, this market is a lever for the sale of new vehicles and loyalty. In fact, when a customer intends to purchase a VN, he often needs the garage to retrieve his car, which in effect becomes a used vehicle. your vehicle and its subsequent renewal. First-time car buyers are reluctant to go directly to an NV, either out of budget or fear. The used version reassures them and gives them time to progressively evolve into the new one.

UV also makes it possible to compensate for any shortage of NVs, or their excessively long lead times, by having a vehicle immediately. We saw this in 2021 at the time of the semiconductor crisis that caused new vehicles to become unavailable due to production stoppages. This is likely one of the reasons for the increase in used car sales in 2021. Some manufacturers, such as Renault, have also turned factories into used vehicle repair centers, thus generating a profit center and barge attraction.

Finally, the ecological sanction, in particular on vehicles affected by values ​​up to 30,000 Euros (40,000 in 2022), has undoubtedly deterred potential buyers of new vehicles, leading them to mention a recent occasion, with little mileage and a warranty comparable to new. Porsche, for example, has widely observed this phenomenon, causing a substantial rise in price on recent occasions.

Stop in 2022

The 2021 upward trend was stopped at the beginning of 2022. This is surprising given the elements developed above, but there are explanations.

On the one hand, the car is no longer essential for a certain number of consumers, especially urban ones. They adopt other forms of mobility, such as public transport, car-sharing, rental and even other types of transport, such as two wheels. We saw an explosion in e-bike sales as the lockdowns stemming from the pandemic ended. The electric vehicle is selling better, its market share is progressing spectacularly, but it remains expensive and faces the problem of autonomy and battery charging.

On the other hand, and this is the main reason, used cars cost more. Its average price has increased by 1,500 Euros in one year, reaching now 14,500 Euros. And the more recent the cars, the greater the drop: – 33% in vehicles less than one year old; – 5% in 2 to 5 years. The older ones remain stable, but the margins are much smaller.

German sedans, Audi, BMW, Mercedes are particularly affected, such as Diesels, which although they still represent 55% of sales, lost 13% in the first quarter of 2022. Only Hybrids (+35%) and electric (+66%) , are progressing, but their volumes are smaller. Gasoline thermal city cars still hold out, but they don’t increase any further.

Purchasing power is therefore the key factor in decreasing sales, both new and used. And it seems that the price perspective is not low, under the combined double effect of the increase in raw materials and fuels, generating an inflation close to 10%. Therefore, the consumer is no longer committed because he no longer has the means and also fears for his future. Only the Korean brands (KIA, Hyundai) continue to sell their models well at “low prices”; like Dacia, which also positions itself in price; and Tesla, which remains the leader in electric and was even the best-selling brand in 2021. They’re still recording rising sales scores, but for how long?

So it becomes urgent that a sector that employs 10% of the active population react, otherwise 2022 will be a catastrophic year, but can manufacturers and distributors?

sum up

While 2021 ended with a result above 8% compared to 2020 (Le Journal de l’Automobile), and the fall in new car sales continues, the second-hand market is in sharp decline in 2022. How to explain such a phenomenon?

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